couple links from the AIGAExperienceDesign group on Bitmap to Vector conversion:
Illustrator Tracing tutorial
Hello, and welcome to this tutorial. Here you'll learn how to
do those nice looking traced images like the one to your right.
Now, I know there is a lot of software out there that will do this work
for you, such as Adobe Streamline or Flash with its bitmap tracing option,
but I'm sure you'll agree with me that there's nothing like the real
thing baby, so let's get on with it and get some skills.
Illustrator How-To: Turn Bitmap Images into Vector Art
Transforming the jagged edges of raster images into the smooth curves of
vector art isn't hard to do using Adobe Illustrator's Auto Trace feature.
But the end result can look simplistic. For more sophisticated images,
you'll need additional help from Illustrator's path-editing tools and from
your image editing application. Here's what you need to do.