You can't use <object>, <iframe> etc tags to embed pictures in your Github README, so you don't get automatic updates there no matter what (i.e. images would only refresh on page load). I don't know if Github proxies and caches <img> contents, or how long they cache it for but I haven't personally seen any delays when I've updated images used in READMEs.
But to repeat: auto-updating will not work for Github-hosted content AFAIK.
Doesn't GitHub cache every image in their own CDN for security and control purposes?