We have a Winforms application which supports dragging and dropping chunks of HTML into Outlook (HTML) mail messages.
Chunks of text are fine.
But how do we
You can embed images in a html email using a base64 encoder. Its quite complicated but you basically encode the image as a text string in the email which is then interpreted.
This does not work in all email clients though.
Take a look at this and see if its what your looking for:
http://www.campaignmonitor.com/blog/post/1761/embedding-images-in-email/
EDIT
The updated campaign monitor post on the clients which work with base64 images.