Word merge to e-mail can only do:
a. merge to a plain text message that is sent as the body of the e-mail
b. merge to an attachment
c. merge to HTML format, but that is only possible if the e-mail client
supports the necessary interface with Word. As far as I'm aware, only the
full Outlook does that, and merge to HTML may not work with anything in
fully up-to-date patched versions of Word.
In other words, (b) is the only option for e-mailing documents with pictures
via OE using MailMerge.
You might be able to do something by merging to a document, splitting the
output into multiple Word files, then opening them one by one and sending
them. Not sure if that is feasible, but splitter macros are frequently
referenced or posted in this group, and there is more info about automating
sending to e-mail at
http://word.mvps.org/FAQs/InterDev/SendMail.htm
Peter Jamieson