I think you are still going to have a white background behind it because the EI doesn't completely dissolve.Yes..add water on the fondant to attach the EI to fondant.
I have done alot of edible images over the years. Yes you have to always have a white background. Even if you background is a different color, you can also make a thin white fondant piece to lay it on and the apply to the cake. Also by using piping gel, lightly water down the image will do better. don't use straight water, it melts and has a tendency to rip the images easier. Hope this helps 
I have used water and gel...both ways I found the EI did not completely dissolve (Or maybe they aren't supposed to either)..Try what works for you!
They will never completely melt., they become as one with your icing, after about a hour or two. Water makes more spots also on the EI, thin out piping gel won't. Plus it gives you a little more working time to move them if you are very patient. Water usually will take ahold of the EI and your done, don't mean to confuse you, just help lol, work with them you will learn your own method. 
Actually, a lot depends on the brand you are using. The Icing Images Premium Brand can handle colored frostings/fondants behind it. Now, to add more confusion but cool confusion, the Premium brand comes in chocolate. But, it makes the image appear sepiaish! I personally have not tried piping gel, but hear a lot of great ideas about working with it. The more moist the frosting is behind the picture, the better it melds in to the frosting.
As far as the white background. If you are using a white icing sheet, than it is no different than printing a photo. Where there is white, white will appear and it is suppose to be white like a picture. It almost sounded like some people were talking about avoiding the white background. I am assuming then that that would be on the edging of the paper so CDavis is correct, you can trim around it or pipe around it. Often times if I dont like the white background, I use my graphics program to make a frame around it.
I will be glad to answer more q
Sorry, I hit the wrong key and away it went! But as I was saying, is I am leaving for a mini vaca this weekend camping so I may not have internet access. I will be back to CC on Sunday/Monday night if you need any more help.
When you cut them, do not take them off the backing first. It is much easier to cut with the backing or you can use an exacto knife to trim just the picture, but again while it is on the backing
Where can I go to get a photo made into an edible image so that I can put on a cake? Do the local bakeries do it? or the photo printing places??
most local bakeries can do it, as long as they have the equipment.
Quote by @%username% on %date%
%body%