(...) As a proof of concept, I have two transactions in the queue which stego one of the Bitcoin logos into the block chain, at a cost to me of 0.02 BTC.

Append all the address fields in these two transactions together, and do a yEnc decode, and you will get back a file called "bitcoin.jpg".

I can see many uses for this, but consider this if you will (You'll need your tin foil hat)

if you can encode images into the blockchain, and everyone downloads the whole blockchain, then, by causality, if an illegal image were to be written to the blockchain (you all know what I'm talking about), and we download the data, would this be grounds for govt action against any user of bitcoin?