Command line: dot -Tps bug_img_ps.txt -o bug_img_ps.ps
I'm using GSView 4.7 and Ghostscript 8.5 under Windows to view the PS files, maybe this is a problem with the viewing software.
Note that for a graph that spans multiple pages (with page="8.5,11" attribute), the pages without images display well, but the ones with images report an error.
Input file: b696.dot
Output file: b696.ps
[erg] At present, we don't support the conversion necessary to embed a bitmap file into postscript output, nor the other way around either.
[paulo] Any chance of using ImageMagick in Graphviz to handle all your image conversion needs? There is a C API. :)