S'clever innit.
You can use your example in CSS, with the background property, which could possibly make for some really hard to save images.
code:
background-image: url('data:image/png;base64,iVBORw....nTsAAAAASUVORK5CYII=');
You can do put content other than images in there as well, including base64 encoded CSS and Javascript but browser support as usual is sketchy. The biggest downside is support for this was only added to IE in 8.0 and then it only permits them up to 32K in size (possibly why Dan is having problems with large images), due to security concerns over malicious content. IE 7 and older simply don't support it.