Base64 Encoding Image

$encoded_data = base64_encode(file_get_contents('path-to-your-image.jpg'));    

As far as I remember there is an xml element for the image data. You can use this website to encode a file (use the upload field). Then just copy and paste the data to the XML element.

You could also use PHP to do this like so:

 <?php
        $im = file_get_contents('filename.gif');
        $imdata = base64_encode($im);      
?> 

Use Mozilla's guide for help on creating OpenSearch plugins. For example, the icon element is used like this:

<img width="16" height="16">data:image/x-icon;base64,imageData</>

Where imageData is your base64 data.