1. images are stored in the /Portal/#/Repository folder, where # is your PortalID
2. edit the form.xml file for the repository template you are using, for example if using the default template, edit /DesktopModules/Repository/templates/default/form.xml. Find the IMAGE token and add a setting named DOWNLOAD and set it's value to TRUE
btw. If you change the template files in the /DesktopModules/Repository/templates folder, it will affect ALL repositories on all portals. If you just want to change the behavior on a single portal without affecting other portals, you can do the following...
1. create a folder named /Portal/#/RepositoryTemplates, where # is your PortalID
2. copy the template folder from the DesktopModules tree, for example, to change the default template, copy the default folder to the new RepositoryTemplates folder, so you end up with /Portal/#/RepositoryTemplate/default. Then edit the files there, that way the change will only affect repository modules in that particular portal. Also, it's a good idea to do that so if you upgrade, your template mods will not be overwritten.
3. In the Repository module settings page, when you select a template, you can tell where the template is being loaded from, if there is an asterisk after the template name it's being loaded from the Portal tree, if not, it's being loaded from the DesktopModules tree.