Google has announced its Google Images database now includes 1.1 billion images. In addition, it confirms what some have been seeing before, that images will now be displayed inline with regular web search results, depending on the query. For example, a query on sunsets or mountains is supposed to bring back images (for me, they don't yet do this).
Google Images suffered embarrassment last year when it was revealed that the image database hadn't been refreshed for some time. Stale & Split Image Databases Fuel Google Conspiracy Theories and More On Google Images & Google News Images cover this more.
Ask Jeeves has long done inline display of images in the way Google is now doing, as Gary covers in this previous post. Yahoo doesn't do inline display but will prompt with a text link at the top of results to try an image search as this example shows: pictures of sunsets. Yahoo also increased its own image database last October, and Gary sings its praises in his Yahoo Announces Size Increase to Image Database.