Question: When creating links for an an html based email, how critical is it to use absolute links? Also, What are the benefits in using relative links in general?

Answer: 
For an html based email, absolute links are deal breaker critical, because they don't have the context of a web site to make relative links work. There are some mechanisms for setting the BASE of a document, but try feeding that to lotus notes...

Personally, on web sites, I try to use at least root absolute links /foo/yada.htm most of the time, because they are easier to test, and I never use parent path links unless putting something on a CD, like to have them turned off on the web server for security reasons. 

I work mainly with CMS/data driven sites, so don't have the pain of doing it by hand.
I would have to agree with balexandre. Although there are pros to using absolute links like less possibilities that a search engine messing something up etc, the advantages of using Relative links are greater for me because I won't have to change all the links if I copy whole portions of a site to another site, or even changing the domain name in the future.

So, for a complicated large website with over 8000 pages like mine, I use Relative links.

For smaller websites with less than 50 pages, Absolute links are slightly better. (if better at all)