Yes and no...
If you are running a mail client such as Outlook or Outlook Express, and you have configured it to send e-mails as html, then you can insert a picture into the e-mail.
BUT... it's not really inserted, it's sent as an attachment and a link in the document to that attachment. If your recipient is also running a similar setup, then they will see the picture embedded in the e-mail.
BUT.. if they have set their client to display plain text, they won't, they''l see it as an attachment. Some e-mail clients will display it as embedded, others as only an attachment, and yet others will display it embedded, and as an attachment.