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I've never even used the version of XOOPS you have. I didn't start with XOOPS until it was at 2.0.5. And I don't know anything about the module you're trying to use.
Your XOOPS version may be incompatible with that module, or it could be a bug in XOOPS, or a bug in the module.
The quick and dirty solution would be to hack the XOOPS code that sends email, so that it sends a hardcoded HTML email with your image embedded.
I would approach that by sending a single HTML email to myself, using my normal email client, with the image embedded. Then I would compare the email headers and content in the received email with the headers and content that XOOPS sends, and make the necessary substitution.
But I don't have time to do that for you.