I had the same problem, the solution occurred to me after reading another post from someone who got it to work with BMPs but could not with JPGs or GIFs.
Since I was storing image data only from JPG files (which are smaller), I tried storing binary data from BMPs instead and it worked. For confirmation, I tried storing some BMPs and some JPGs and Crystal Reports only displayed the BMPs.
I have only tested this using an ODBC connection to SQL Server 7 (it should work with other ODBC sources)