@wp_hela - That is interesting, it sounds like maybe there was an update with the image insert logic. Before my plugin and even with the wp-config hacks it used to put in full urls. I'll double check this with my plugin disabled.
I use HTTP_HOST instead of SERVER_NAME because if you access the site from localhost instead of the actual server's name, I need to know 'localhost' was where you accessed it from so I can strip it out of certain places where WP will inject it. IIRC SERVER_NAME is system defined so if user browses a HOST redirected site I wouldn't be able to match the SERVER_NAME with the host value used in the browser. But I will certainly look into this as it could be one of the problems causing infinite 301 redirects for a very small group of users.
As for what purpose my plugin serves, it's very faceted. My plugin should make all of your links root relative in your content - links, pages, menus, images (media items really.) It allows you to access your host from multiple domains/ip addresses/host maps. So you can access your development site from http://127.0.0.1/ and from http://computername/ and from http://www.productionsimulatedhost.com/. Without my plugin you could do this with the wp-config hack recommended by the WP core team, but you end up with those literal host names in your database content.
And you cannot use that method to login to the admin portal because it will auto redirect you to the value used in the url defined under Settings > General (at least this was the case in wp3.1 when I wrote the plugin.) The end result is being able to test admin features from devices like the iPhone where host redirects are not configurable without rooting the phone.
My plugin also re-injects dynamic absolute urls for RSS feeds because two popular feed readers google reader and feedburner have bugs in their parsing logic, and they will report root relative links as relative to their root and not your site. They are bugs that neither company will fix and virtually no other piece of software since 1998 has this problem, but alas reality is what it is.
Basically my plugin is designed to make it easy to test multiple wordpress installations that all share the same database, or host multiple sites from the same database, and be able to migrate that content from development to staging to production on a repeated basis without doing any dangerous transformations to the sql exports.
But thanks for tipping me off to the root relative images, and I'll see what I can do with SERVER_NAME versus HTTP_HOST - hopefully it will provide a solution for those with 301 redirects.