If you need the file saved after the image is inserted, you will need a LiveCycle Reader Extensions Server, since Reader by default is not allowed to save PDF files. It's just a reader.
If you design your form in LiveCycle Designer (comes with Acrobat 8 Professional), there is a form object called an "Image Field". The default action for an image field when a user clicks on it is to open a dialog, browse to an image, and insert that image into the image field. Again, if the file then needs to be saved (so that the image stays embedded in the document), your form will need to be enabled via a LiveCycle Reader Extensions Server.