I used Gimp (free download) and Designaknit to create the images. I paid attention to the number of pixels for the width but forgot to calculate length for the Ruby pillow. Geesh. It turned out Ok, but it's one of those little regrets when all is said and done. Her dad says she's in love with it----slept with it for a week in her little tent----so I guess that's all that matters.
For info on how to use Gimp, I followed the instructions here: http://wiki.evilmadscientist.com/Producing_a_stippled_image_with_Gimp an excellent tutorial.
Then I used DAK's Graphic Studio to convert the picture to a knit design. It's not too difficult, but I think I did mess around a bit to get the amount of shading that looked good. I did fairisle because it's so fast and the floats are hidden inside the pillow. The back of the pillow is just plain stockinette in the darker color, then seamed on 3 sides. Once steamed lightly the stitches stay in place. I'm sure if you like double bed jacquard, that would work just as nicely. Also, there are other programs that work for this, not just DAK. Ravelry and Facebook have a lot of examples.
Kind of fun, pretty easy. You might want to give it a try.