There is no need to purchase the Image extension and install the stand-alone version to create and publish ISCDefs. However, to publish a mosaic dataset you need the the Image extension for ArcGIS Server. If this sounds confusing, see ArcGIS Server Image extension version 10 versus 9.3.
The online content states: *NOTE: ArcGIS 10 is the last release of the stand-alone ArcGIS Image Server product. The image service definition (.ISDef) has been replaced by an improved geodatabase data model�??the mosaic dataset�??which can be published as an image service using the ArcGIS Server Image extension.