By request:
Open up your sig.
Minimize it.
Open up the image you want to put into the sig.
With the eraser, erase any parts of the picture you don't want in the sig, like the background of the picture.
Type Ctrl-A to select the entire picture.
Type Ctrl-C to copy the picture to your clipboard.
Maximize your sig.
Type Ctrl-V to paste the picture from your clipboard to the sig.
From there, you can hit Ctrl-T (in photoshop) to change the size, and position of the picture in the sig.
Then you can play around with blending it, changing opacity and blend modes.
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