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Okay, first I'd like to say I've searched through some past posts looking for an answer to this question, so I apologize if it's a repeat. My question is is it okay to send a SASE big enough to hold an 8x10 inside a 5x7 envelope with a photo and LoR? Would it be too obvious you're hoping for a bigger photo in return or is it just better to use an 8x10 envelope for both envelopes?

It depends. I sometimes do this to save money, so that you're only paying more for the return envelope. Just fold up the large envelope and make it really flat. But depending on the celebrity, search these forums and see if they send large pictures. If not, just send a regular sized envelope. If I may ask, who are you sending to?