In a simple setup with an image inside a label:
<input type='checkbox' id='x'>
<label for='x'>click me <img src='http://placedog.com/20/20'></label>
clicks on the image control the checkbox just like clicks on the text in the label or clicks on the checkbox itself, in most browsers. That it doesn’t work in IE7 doesn’t particularly surprise me, but I’m wondering whether there’s some weird IE way of making it work, in that browser.
fake edit hmm apparently it doesn’t work in IE8 either.
As discussed in the comments, IE doesn’t like this idea. The only way to get around it is with a bit of Javascript – here’s an example using JQuery.
See http://snook.ca/archives/javascript/using_images_as for a discussion on this.