Diagrams could be done using artist-mode (http://www.emacswiki.org/emacs/ArtistMode). Images themselves can apparently be embedded/displayed:

- http://www.gnu.org/software/emacs/elisp/html_node/Images.htm...

- http://www.gnu.org/s/emacs/manual/html_node/elisp/Showing-Im...

- http://obsidianrook.com/codelife/emacs_image_mode.html