I would not try and do it that way.  You should add a field to the data
source that contains the filename of the picture that you want to include
for each record.

See the "Graphics from data base" item under the "Special merges" section of
fellow MVP Cindy Meister's website at

http://homepage.swissonline.ch/cindymeister/MergFram.htm

I agree with Doug. The simplest way to do this would be to rename your
pictures (or copy your pictures and name them) to match the names of your
characters eg allison.jpg mark.jpg etc. Then you don't need a conditional
field of any kind. Use instead

{INCLUDEPICTURE "C:\\Path\\{MERGEFIELD SLSP}.jpg"}

The mergefield switches are in any case superfluous (and would be better
replaced by a lower case switch to ensure that the condition always matches
the data.

Had you wanted to retain the original names, there is no need to nest the
fields. Use a series of fields on the same line eg

{IF { MERGEFIELD SLSP1 \*Lower} = "allison" "{INCLUDEPICTURE
"c:\\path\\picture1.jpg"}"}{IF { MERGEFIELD SLSP1 \*Lower} = "mark"
"{INCLUDEPICTURE "c:\\path\\picture2.jpg"}"}{IF { MERGEFIELD SLSP1 \*Lower}
= "william" "{INCLUDEPICTURE "c:\\path\\picture3.jpg"}"}{IF { MERGEFIELD
SLSP1 \*Lower} = "william2" "{INCLUDEPICTURE "c:\\path\\picture4.jpg"}"}

See http://www.gmayor.com/mail_merge_graphics.htm