The standard <SELECT> HTML element does not support this. Folks have
used CSS techniques as workarounds, though. There are some commercial
ASP.NET components that allow for this, doing all the heavy lifting for
you. For example, EasyListBox can have images in the DropDownList as
this demo illustrates: http://easylistbox.com/demoCustomized.aspx
(One disadvantage of EasyListBox is that its "cool" features - images,
multi-column support, etc. - only work in IE and not Mozilla FireFox (my
browser of choice).)