We produce a debit card in-house with pictures, student barcodes, and various permissions.  It's not hard, byut the logistics of picturing taking and naming conventions are critical.  All the information is contained in Blackbaud with things like photoname created as an attribute.

Raco Supplies in Ohio (Patty Jones at 800-445-1991) pointed me in the right direction for an Eltron card printer (around $2500) and relatively easy to use software.  We paid for the printer in the first year of producing the debit cards.

By the way, I also produce a number of namebadges, info cards, schedules and other items using the cards.  The machine has a great fundraising potential when it's not creating ID cards. 

 I would love to know how you've done this; as we're looking to create ID badges for our faculty and staff.