With Word, you could set up a template sheet, then put your thumbnails in each of the labels via a two-column table, leaving the second column for the address. The problem with this is that because all the labels will have pictures, you're kind of stuck printing an entire sheet at a time.
In any case, here's the drill for the labels:
1.Click on the Tools->Letters and Mailings->Envelopes and Labels menu item.
2.Click on the Labels tab.
3.Click the Options button.
4.Scroll through the Label Products list box looking for the label manufacturer.
5.Scroll through the Product Numbers list box looking for the label you want to use.
6.Click OK.
7.Click the New Document button.
This should create a document with a table of cells, one for each label.
8.If you can't see where the labels begin and end, click the Table->Show Gridlines menu item.
9.Design your label in one cell of the table. Insert a two-column table in the cell, then position and size your picture in the left-hand cell.
10.When you're satisfied with it, copy-and-paste it into the other cells and save it.
Now to save the file as a Word document template.
11. When you have the page set up the way you want, click the File->Save As menu item.
12. In the Save As File list box, find and select Document Template (*.dot). This should switch the directory to your User Template Directory.
13. Save the label template there. You can copy it to other machines or move it to a common server, depending on how your shop is set up.
The new template will now show up in the General Templates list when you do a File->New operation.
If you wanted to integrate this with Mail Merge, you'd add data fields to the labels.
Hope that helps