Embedding images into forms is a feature that would really enhance the power of Google Forms. Unfortunately, Google has yet (as of 3/1/2013) to include this feature. James Eichmiller created a script that allows users to embed images stored in Google Drive into their Google forms very easily however. Instructions can be found here.
Embedded below is a video made by Bryan Weinert that shows the script in action. He uses it for inserting exported graphic versions of equations made with Daum Equation Editor.*
* If you teach Math, check out the Daum Equation Editor app available in the Chrome Web Store.