By default there are a number of pictures installed on your Windows Phone 7 emulator. I needed to add some custom pictures to shoot some video and the defaults just were not appropriate.
To add your custom pictures just add them to a web site (or search for them on the web) then open up Internet Explorer, find your web side, press-and-hold the image, that will save the image to the picture hub (even though you can’t see that on the emulator). Then you can use a picker within your application to select the image you downloaded from the web.
These pictures will be removed from your emulator when it is shut down.