There are a few issues to consider here :
Can an image file contain a virus : Technically any kind of file can masquerade as another, so it is possible that a virus could be contained inside an image. However, there has to be some way of a) ensuring the image is not corrupted by the virus so it still appears as an image thus allowing it to propagate & b) finding a way for a known vulnerability / exploit on your computer to activate the virus. There is minimal risk of this happening if you have an anti-virus program running and you keep your computer updated with patches from the vendor / operating system manufacturer.
Can an image in an email cause your computer to be infected with a virus : Yes ! Although companies like Yahoo, Microsoft & Google who offer free web-based email access do scan and block viruses / spam to the best of their abilities, every new virus will, for a time, have no protection against it. Therefore, you could be the unlucky recipient of a new virus before the anti-virus companies have released updates to protect against it.
Are there any other reasons to keep images blocked in emails : Yes. Images can be hosted on sites which can check to see if the image has been accessed. Virus senders / spammers / phishers et al create individual small images for each email they send, and then check to see if the image has been accessed. If so, they know you are there, reading their emails so they put you on their list of active accounts, thus guaranteeing further spam from them and whoever else they sell / trade your contact details with.
Take a look at this FAQ entry for a little more reading and spend a little time becoming familiar with the dangers of the web so you will know what to look out for and protect yourself against :
http://www.lpsg.org/211357-how-to-keep-your-computer.html#post3104553