As a generalrule you need to use a nested field such as
{ INCLUDEPICTURE "{ MERGEFIELD photolocation }" }
All the {} need to be the special field code braces you can insert using
ctrl-F9
However, you will need to test this as, e.g.
a. Word may not be able to retrieve the picture if, for example, the
hyperlink is to a web address rather than a Windows file system folder
b. Word won't work with all types of photo (e.g. .jpg is probably OK), and
you may find it difficult to get the photo to be the size you want
c.you may need to output the mailmerge to a new document, then select it
and press F9 to update the links, to see the photos. Then you'd probbaly
have to split the document up if for example you were e-mailing one to each
set of parents.

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Peter Jamieson
> We want to send a letter to our current parents with their
> child's picture on it. My data source is an Excel file.
[quoted text clipped - 3 lines]
> display the appropriate photo instead of just text (not
> even a hyperlink) to the location the photo is saved at?
See http://www.gmayor.com/mail_merge_graphics.htm

Signature
<>>< ><<> ><<> <>>< ><<> <>>< <>><<>
Graham Mayor - Word MVP
My web site www.gmayor.com
Word MVP web site http://word.mvps.org
<>>< ><<> ><<> <>>< ><<> <>>< <>><<>
> We want to send a letter to our current parents with their
> child's picture on it. My data source is an Excel file.
[quoted text clipped - 3 lines]
> display the appropriate photo instead of just text (not
> even a hyperlink) to the location the photo is saved at?