It’s always sad to see a country-based instance go, they bring together a nice community, and it’s an opportunity to learn more about the country.
Maintaining an instance is a lot of work, so this decision definitely makes sense if the admin didn’t have the time to take care of it. Hopefully the other instances are still going strong.
Unfortunately even if you use external hosts, the instances will still keep a copy of the picture locally.
I guess they wanted to avoid losing all pictures in case an image hoster goes bust.