Yes I've heard the same... even extending to Oral Sex, and snorting away most of her earnings, which otherwise could have been invested into a sizable life savings.
I don't think she ever looked as cute as Season 1, but (on the show), I don't think she ever looked terrible. I had a huge crush on her during the show's airing, and still look back at these old shots with great admiration. My taste in women has not changed with her.
I think the mistake they made with her (other than her drug use) was trying to glam her up. She was at very hottest IMO when she was wearing the pixie style hair cut and just enough makeup to augment her natural beauty, like the pic you posted. Everyone fell in love with her like they did Maryann from Gilligan's Island - the very cute, very hot girl next door. Later on, they tarted her up with big hair and Tammy Faye Baker makeup.
They do that a lot with actresses and singers who start off with the girl next door vibe. For some reason they don't think that is sexy yet is better than glammed up most of the time.