First you have to create an empty (null) RadDiagramShape after that you have to set it's content property to the desired Image. Ones this is done you have to add this shape into the Items collection of the RadDiagram control in order to show it.
For more information about the usage of the control you can take a look at our help documentation. Also you can see implemented some scenarios in our demo projects.
Find attached a project implementing the desired functionality and let me know if it works for you.