This doesn't look right yet.  With a simple fix it could preserve file
names in the dired buffer:

--- lisp/iimage.el	6 Aug 2005 22:13:43 -0000	1.6
+++ lisp/iimage.el	5 Feb 2006 20:28:32 -0000
@@ -133,12 +133,43 @@
-		  (add-text-properties (match-beginning 0) (match-end 0)
-				       (list 'display (create-image file)))
-		(remove-text-properties (match-beginning 0) (match-end 0)
-					'(display)))))))
+		  (let ((ov (make-overlay (match-beginning 0) (match-end 0))))
+		    (overlay-put ov 'evaporate t)
+		    (overlay-put ov 'before-string
+				 (propertize " "
+					     'display
+					     (create-image file))))
+		(remove-overlays (match-beginning 0) (match-end 0)
+				 'display))))))

After that, images get added before the file name part in the dired
buffer like: