Is it possible to replace a character with a jpeg/png image?

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Yes https://www.gnu.org/software/emacs/manual/html_node/elisp/Images.html

If you don't shy away from learning elisp and writing a little bit of custom code, it shouldn't be an issue. [Here](https://www.emacswiki.org/emacs/PrettyLambda#h5o-4) is an example for replacing the lambda keyword with an image. Shouldn't be too much trouble to adapt for your use-case.