OMG, THANK you, JSWolf!
I never knew Mobireader can convert epub. Now I can tinker with css in Calibre and get nice mobi in seconds. (I don't know much html yet, mostly it's like 'if I change this value, let's see what happens'. Calibre conversions take much longer time.)
I have put jpgs into books (img link) with Creator and don't remember any problems. When I click on the picture in my Palm, it zooms out and becomes scrollable, just like in PC Mobireader.