The only way I've found to easily embed pics into MS Outlook, Yahoo, or any other email system is to convert the pic to a gif file, then copy and paste it. I've never had any luck trying to copy/paste jpeg's and bitmaps.
Yep and not all programs to read mail support it either. Pictures tend to get marked as spam. Most email that has pictures in them are loading them from a website via HTML. If you have no internet connection or you block access you don't see the pictures.