Disregard. I found the issue.
The InfoPopup widget has explicit code in it removing any img tags if browser is IE or Opera.
Here's the explicit code:
/////////////////////////////////////
if (dojo.isIE || dojo.isOpera) {
dojo.query("img", this.contentNode).forE
ach( function(img) {
img.parentNode.removeChild(img);
});
}
////////////////////////////////////
FYI: InfoPop is a part of a sample viewer ESRI posted to their Code Gallery a few years ago when ArcGIS API for Javascript first came out. We took it and ran with it. We have kept it current with the latest API version. Maybe InfoPop didn't behave properly with img tags at version 1.2 and thus the code above. But images appear without any problems now at 2.3.