Outlook Express displays image attachments at the bottom of the message and many users miss it when they switch to Outlook, because it doesn’t support viewing images inline, and you need to open each image to view it.
By design, Outlook only shows images “inline” (in the message body) when the message is sent using HTML with embedded images or RTF formatting with OLE embedded images. Images in plain text mail items are listed as attachments (that you can open or save). Attachments to plain text messages are not displayed in the message body, as they are in Outlook Express.

Outlook MVP Eric Legault shows you how to create a picture viewer in these two articles:

http://blogs.officezealot.com/legault/archive/2004/01/29/222.aspx
Viewing Multiple Picture Attachments in Outlook 2003 (MSDN)

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