I've built a proof of concept that shows how Flash 8 can both read, store, and write out an image.
The question regarding this possibility was the topic of much discussion during Q&A at the end of a recent Macromedia Australia Breeze seminar.
Have a look at the example below. You'll see an image that will be read and converted into individual pixel values, then have those values stored in an Array once the first button is clicked.
Clicking on the second button will run code that will read the pixel values from the Array where they've been stored and write them into a new image. I've also included for this demonstration a dump of the string values that represent the pixels for one of the lines that are both read and drawn in this example.
Here's a basic example of what's in the code, this does no include any of the button logic that's been used in the example SWF, I've commented it so that you can see what's happening - there's a bit there, just click on the thumbnail to pop up the screenshot or you down download the original FLA from here (due to the size of the image TypePad is adjusting its size downwards for the popup and affecting the quality - it's out of my control).
Find out more on some of the code used in this demo by reading this great DevNet article by Guy Watson here.

I have some examples I made saving jpgs out - thought you might be interested:
http://pixelfumes.blogspot.com/2005/11/red-eye-removal-with-flash-8-upload.html
http://pixelfumes.blogspot.com/2005/11/saving-flash-to-jpg-with-c-aspnet.html
-Sarge
Posted by: Sarge | 03 December 2005 at 01:25 PM