Kate’s Sideblog plugin – using images as permalinks?

Hiya

I want to use the sideblog plugin (http://katesgasis.com/2006/05/02/sideblog-plugin-v30/) to link to the most recent in a category, BUT I want to use an image to link to it, and at the moment %permalink% produces “#” can someone help me/talk me through changing this to an image as everytime I’ve tried I get errors… (I know xhtml and css but my php is pretty basic…)

TIA