I have been working on recreating a website to make it iPhone compliant. In doing this I have been investigating numerous ways to reduce calls to the server. In some demo code I had I saw an image load using a Base64 image. This intrigued me and I investigated this further.
I was able to convert all the navigational images in the site to Base64. This reduced the overall loading call count from 300 to 5. However, the CSS file was much larger. But even still, the overall load time was reduced by over 50%.
There are numerous advantages and disadvantages do using this technique. The first large one is browser support. Since I was targeting the iPhone, this method works fine. However, IE only supports this with v8 and limited support at that. Read more about the pros/cons here.