Originally Posted by argh01

bam bam:
if you look at the wp_autoblog_trim_excerpt function, it does a 'strip_tags' on the content. I'm going to try running my copy with '<img>' in the second position in the function and see if I get some images.

In other words, on about line 46, I'm changing my copy to:
$text = strip_tags($text, '<img>');

If you look at the docs for strip_tags, PHP: strip_tags - Manual , that should allow the img tag through the filters, but I don't know if it's the only place that the img is getting hung up n.