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really hiding encrypted data
>However, I suspect it is easy to distinguish between the collection
>of least significant bits of a normal picture file and the collection
>of least significant bits of a picture file used to hold some
>encrypted data.
This may be. The connection is not obvious, but there may be
correlations because of data conversions, mechanical scanner
characteristics, etc.
The first step in any such system which more closely hides data is to
study carefully the statistics of base images. Until you understand
them, any attempt at mimicking them is bound for failure.
Seeking a good understanding of the statistical properties of messages
of various sorts is generally missing in cypherpunks activity. The
area gets quite technical, and we as a group need to develop some
better understanding of it.
Eric