Embedding Pics in Messages:
Although the group will show embedded pics as attachments, when your email goes out to members, they will reappear inline.
First of all, you must use a mail client, such as Thunderbird, or Outlook Express.
Recent updates to Apple's Mail.app also support embedding.
I will explain the process for users of Thunderbird and Outlook/Outlook Express on Windows, and Thunderbird and Apple Mail on Mac.

WINDOWS:
Thunderbird:

1. Open a new message addressed to the group you want.
2. Place an insertion point in the body of the message.
3. From the menu select Edit > Insert > Picture.
4. Use the "browse" dialogue to select your pic.
5. Important! Insert a space under each pic before adding the next. This will ensure that the pics will be in a vertical view format on Yahoo and Hotmail webmail sites.
6. When you have fiished adding, click Send.

Outlook/Outlook Express:

1. Open a new message addressed to the group you want.
2. Place an insertion point in the body of the message.
3. From the menu select Insert > Picture.
   
4. Use the "browse" dialogue to select your pic.
5. Important! Insert a space under each pic before adding the next. This will ensure that the pics will be in a vertical view format on Yahoo and Hotmail webmail sites.
6. When you have fiished adding, click Send.

MAC:
Thunderbird:
IMPORTANT! With Thunderbird, you can use the Insert Picture commands from the menu, but it is easier to just drag and drop the pics where you want them in the email.

1. Open a new message addressed to the group you want.
2. Place an insertion point in the body of the message.
3. Drag the pic you want to insert to the insertion point. Release.
4. Important! Insert a space under each pic before adding the next. This will ensure that the pics will be in a vertical view format on Yahoo and Hotmail webmail sites.
   Note: I find it easiest to create an email with numbers or asterisks for each pic you intend to add, followed by a line break (return or enter). Then you can just drag your pics to the spaces between the numbers or asterisks. (With some email clients, you can create a Stationery document with the asterisks or numbers, to use over and over.)
   
5. When you have fiished adding, click Send.
   
   

Apple's Mail.app

1. Open a new message addressed to the group you want.
   
2. Place an insertion point where you want the image to appear.
   
3. Drag the image to that point. It will appear there in a translucent version.
   
4. At the bottom right, chose "image Size"
   
5. Click on the body of the email. The image will become opaque.
   
6. When you have finished adding, click Send.

Saving Embedded Pics:

I am not sure how you do this on a PC, but on a Mac, if it is on a webmail site, just click on the pic and use the "Save" dialogue in the contextual menu. in fact, on most sites you can click on the pic and drag it to the desktop or a folder of your choice.
If you have downloaded the email with a Mac email client, you can drag the pic to the desktop or a folder.

On a Windows machine, you may have to use a screen capture app.

TIP: If you delete mail with embedded pics on the Mac, the pics will be moved to the trash, and you can retrieve them as you wish! This does not work for hotlinked pics!