AFAIK, images that will appear in an email must be an attachment. because html is interpreted, you can't just find and replace to ge tthe image in there.
your choices are to use a fully qualified url to the image(http://somedomain/com/images/thatlogo.gif) , or embed it like in this example i created: so you'll need to get the IMAGE datatype to a file so it can be attached prior to teh email, i'm thinking.
declare @body1 varchar(4000)
set @body1 = '<html><head>
<title> Embedded Logo Example</title>
<meta name="Generator" content="EditPlus">
<meta name="Author" content="">
<meta name="Keywords" content="">
<meta name="Description" content="">
<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>
@profile_name='Your Email Profile Name',
@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'
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