Too bad this will probably be banned for eating up a lot of CL bandwidth. See prior hack called listpic: http://downloadsquad.switched.com/2007/06/08/jim-buckmeister...
We get the craigslist postings from the 3taps API, which themselves scrape Google Caches to import that data.
The images are typically hosted on services like imageshack or flickr. We store everything in our own database and keep track of our own version of the data, which we stream from the 3taps firehose.