A recently released virus, W32/Perrun-A has the capability of modifying JPEG (image) files to include part of the virus code. Vincent Gullotto of Network Associates has bee quoted as saying "Because JPEGs are a common image format on the Web, the virus poses a risk of infecting any user who views an infected file on a Web site. Users would have to have the executable on their systems for this to occur." This is a strange thing to say, the executable is part of the virus, so, in effect, "any user" who is already infected may be infected by viewing an image on a website. This is also obvious from the name assigned to it by Network Associates and other anti-virus developers: W32/Perrun-A, indicating it is a 32-bit Windows executable - the .exe file must be present for the virus to work.
For a more reasoned description of W32/Perrun-A, see: http://www.sophos.com/virusinfo/articles/perrun.html
To provide some practical advice for users, do not worry about viewing or downloading images. If your anti-virus software reports W32/Perrun-A on your system, follow the developer's removal instructions, and, to be certain there are no corrupted JPEG's left, scan all files. In fact, it is a good recommendation when cleaning up after any infection to scan everything as a check at the end.