I hope this is helpful. A couple of people recently have uploaded prc format books with illustrations. Unfortunately the illustrations are very small (at least on a 600x480 PDA - I guess on a low resolution device they'd be fine).
I don't know whether this is a quirk of BookDesigner (and maybe the illustrations look fine in BBeB), but there is a useful page in the
mobipocket content development reference pages.
It's worth checking out the page itself, but the nub is that you can create links to 3 different versions of the image and mobipocket will pick the right one for the screen resolution of the user device. An example of the HTML to do this is:
Code:
<img hisrc="cover480x640.gif" src="cover220x300.gif" losrc="cover140x140.gif"/>
As I say - I hope this is useful.