I am working on the form that is similar to this post and have a problem as well. You have mention: "to have the images returned as base64 encoded images inside of a web service call" Do you have an sample on how to have it done, can you please share. Or can you please explain little bit more on how to start it.
I am assuming that you are using LC Server to construct the Web Service call. I simply retieve the image from the file system or repository (depending on where you stored it) and either of those services creates a document object. Then in a setValue operation you can assign the document object to a string variable that is marked as output. In that assignment you can use the Document functions that are provided and one of them converts the doc to a Base64 encoded string.
Thats all there is to it.