We have embedded the image service into a map service and published that. When you try to add the map service to the Make Image Server Layer GP tool, you can not drag it into the 'Input Image Service' text box in the tool window, nor can you add it through clicking on the navigate button and going to the ArcGIS Server directory.
The only option is to select services of type 'Image Service', which I'm not really sure how you would be able to navigate to one of those. I even tried to navigate to the ISDef file, but those files do not display within the navigation window.
I also find it odd that a tool named Make Image Server Layer would require an embedded image service in a map service as an input.