It's not that difficult at a theoretic level to make a JPEG (or similar) that can be malicious. Apple have patched the various image decoders in Mac OSX more than once to prevent this sort of attack. Basically when the components that interpret and render images load an image they allocate buffers to store data in. A malicious image will trick the code into loading too much data into the buffer (this is a code error in the decoder). The extra image "data" will now end up in executable space. So what was image data is no code and can be run.
Still the chances are that this could never be a virus, it'd not be able to self replicate, rather a method for non-replicating malicious code to enter the system. Fortunately OSX (and later version of Windows) implement a number of security technologies to lessen the chances of this sort of attack, the foremost being address space randomisation.
Was just curious. I am still new to mac and the feature to be able to drag and put in iphoto is a cool thing. Just wasn't sure if something could be embedded in a jpeg and than hurt your cpu when saving it in iphoto.