For those who have bought ebooks through Sony Connect, if the books incldue pictures or photographs inside it, do they get re-produced in the ebook format?

Yes they do include images, but sometimes the compression is pretty bad. For instance, the diagrams in Getting Things Done by David Allen are practically unreadable. Caveat emptor.

The images in the eReader version are terrible, too. I wrote David Co. about it. They apologized and sent me the images in PDF, which are avaiable on his website, I think. So, you could probably add those to your Reader for better viewing.