This was a question a couple of weeks ago. It was interesting enough for me to go and try to program it! My first attempts were pixel based, but this one is a full-fledged Windows application which outputs a printed image -- I recommend printing to a PDF, so you can test various settings at your leisure.
It looks like this (slightly bigger than here):
and can be downloaded for your pleasure at my own little space of the web (thass a direct download link). It works allright under XP, don't have a Vista nearby so I can't try that out...
First, a tip: don't stress test it! It's a quicky, written in something like 5 or 6 hours, and any weird input will surely crash it... The "preview" is more of a gimmick, it doesn't really tries the transform. Perhaps later...
It only accepts BMP files (but since it only works under Windows anyway, I don't see reasons for complaints -- also, loading any graphic file is hard!). On the plus side, you can directly drag your BMPs on it, and type or paste text directly into the RTF box. Any formatting will be lost in the output, though.
If you need access to a Page Setup box, hold the Shift key while pressing Print (I ran out of screen estate).
A tiny teaser: Che looks like this.
As you see, it works best with "iconic" images that are still recognizable in this coarse resolution. That's where the icon and sample came from; old Al is pretty iconic by now.