With the advent of CS2, Illustrator’s old Trace Tool became the new super Live Trace and opened up a new world of possibilities! Go Object > Live Trace > Tracing Options once you have Placed or pasted your image into your Illustrator document. Make sure you have the Preview check box checked so you can see your chosen options before you hit Trace. Remember you have to go Object > Expand to turn the trace to outlines/vectors.
