Glossary

Popovers can handle images but be aware that it will even more slow down the loading of the popover.
The ability to make words autolink, casesensitiveness, etc... are handled by the glossary module. AFAIK there is no way to turn this off...
I agree there should be a way to take students automatically back to the text they were annotating. Unfortunately this also involves changes to the glossary module. I already had to make a small one (the one which prefills the concept formfield with the word a student selected) and I don't think there is a Moodle standard way of telling to another module which module it should return the student to (something like $fromdiscussion in the forum module)