printing - How do I do a mail merge that includes images? (Maybe in Word 2007)

I am trying to find out the practicalities of doing a mail merge when each “record” to be merged on includes some images.

I need to:

• print letters


• And envelopes

Both the letters and the envelopes have:

• Fixed text


• Fixed images


• Text that come from the mail merge record


• Images that come from the mail merge record


• I don’t know if all images will be the same size for every record, so a bit of simple “on the fly” automatic formatting may be needed .

I need to be able to repeat a single item if I get a problem (e.g when folding the letter).

What problems am I likely to have?

Is Word 2007 up to this sort of mail merging, or should I be looking at a report writing tool?

How do I restart a print run after a printer jam etc?

What format should I store the “records” and there images in?
E.g Can standard software cope with images that are stored in separate files named after the “CustomerId” that is in the “record”

(I can write custom software if needed, but would rather use standard “of-the-shelf” software for the printing, I am planning on custom software for the data creation, so can output in whatever format is needed)