the secret is to use cid:attachedimage.gif for the source file.
here's a setup and working example:
I'm attaching the results of a query, and i copied the SQl server logo to my C:\ drive of my sql server.
declare @body1 varchar(4000)
set @body1 = '<head>
<title> Embedded Logo Example</title>
<meta name="Generator" content="EditPlus">
<meta name="Author" content="">
<meta name="Keywords" content="">
<meta name="Description" content="">
</head>
<body>
<table><tr><td valign="top" align="left">MyHeader</td></tr>
<tr><td valign="top" align="left"><img src="cid:sqlservercentral_logo.gif" width="235" height="70" border="0" alt=""></td></tr>
</table>
</body>'
EXEC msdb.dbo.sp_send_dbmail
@profile_name='MyDefault EmailProfile',
@recipients='lowell@somedomain.net',
@subject = 'SQl 2008 email test',
@body = @body1,
@body_format = 'HTML',
@query = 'SELECT top 3 * from sysobjects where xtype=''U''',
@query_result_header = 0,
@exclude_query_output = 1,
@append_query_error = 1,
@attach_query_result_as_file = 1,
@query_attachment_filename = 'results.txt',
@query_result_no_padding = 1,
@file_attachments = 'C:\sqlservercentral_logo.gif'
Lowell