Being based on WebKit, Mail is capable of editing HTML, but this option is not available by default. Officially it is only possible to compose messages using plain or rich text. The interesting thing is that Mail allows you to edit an HTML message, once you managed to put some HTML in the content. There are many ways to do that, here are three examples:
- Directly from Safari (File » Mail Contents of This Page)
- Copying and pasting some HTML content (from whichever Web Browser)
- From the Mail bundle in TextMate
If you want your messages to display correctly everywhere, some care is needed in choosing image formats. If you simply drag and drop an image from another application, it will be sent as a TIFF, and Outlook will not be able to display it (unless you click on Reply; apparently the image viewer in the preview pane is not the same as the one in the Compose window). You should also avoid embedding PDF images.
On the other hand, if you drag or copy/paste a jpeg file in the message, it will be correctly encoded as image/jpeg. Last thing to be aware of: your message should begin and end with text (i.e. you should not embed an image or a file at the beginning or end of file).
If there are problems with the text encoding, the best is to use UTF-8. Here is an interesting post explaining how to do that: in brief, open the Terminal and issue the following:
defaults write com.apple.mail NSPreferredMailCharset "UTF-8"
Warning: The message will be sent in HTML only. This means that it will not be readable by a recipient using a text-only client.

