I don't have VS 2005 any longer, but I do remember that all you had to do in order to insert a picture from file was to right click on an empty section of the report you were editing/creating, choose Insert -> Picture and a file dialog box would open. You chose your picture file (only certain file formats were supported) and then you could drag a box around the report and left-click when you had the desired location. That would insert the picture into the report and then you could right-click on it and format it.
Hope that helps,
Chris
EDIT: According to SAP there is a way of achieving what you are after. There is a sample you can download here. The way you are trying to do it is only possible for Crystal Reports XI R2 and Crystal Reports 2008. Here is the link to the post at SAP.