I am looking for opinions of how to handle large binary files on which my source code (web application) is dependent. We are currently discussing several alternatives:
Have a look at git bup which is a Git extension to smartly store large binaries in a Git repository.
You'd want to have it as a submodule, but you won't have to worry about the repository getting hard to handle. One of their sample use cases is storing VM images in Git.
I haven't actually seen better compression rates, but my repositories don't have really large binaries in them.
Your mileage may vary.