I definitely thought this was going to be storing data as the image.
I'd be interesting in the (computational) detection for that. Of course, if you just encode/decode it, Yahoo could do the same.
If you encrypt the data, they could just check to see how high the entropy is. If it's higher than what's plausible for a real photograph, they'd delete it. (using ent [1])
Else, you could use good ole stenography. In researching this response I came across the term Steganalysis[2]. Pretty interesting!