Portraits and Avatars

• Daz Studio: Free 3d figure rendering software generally compatible with Poser. I’ve heard Daz Studio is easier to use than Poser, but having tried both, I think Poser is easier.
• HeroMachine 2.5: A site that allows you to generate a 2d avatar figure. Highly customizable.

Photos

• Flickr: The advanced photo search allows you to limit the search to photos with a Creative Commons license. Lots and lots and lots of celebrity and model photos.
• EveryStockPhoto: Another search engine for free photos. You’ll find some celebrities and models here.
• PicFinder: Some decent public domain / free license photos of well-known celebrities and models.
• Wikipedia’s Public Domain image resources: Better for places and things and worldbuilding than character photos.

Artwork

• Shadowscapes: This artist allows her art to be used by others, as long as it’s put on a non-profit page and isn’t directly linked from her site, her copyright notice remains intact, the image isn’t modified (except for sizing), and the image you want to use isn’t copyrighted to a third party. See the FAQ.
• Moxie Graphix: Digital art and some photographs. Some of it is Not Safe For Work. The artist’s work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. She notes “You may post my work elsewhere so long as you give me credit by linking back to my blog or this webpage. You may NOT use my work for any commercial uses at all or alter my work in any way without express written permission.”
• Official Website of Larry Elmore: Elmore notes in his FAQ that “You can use the images. All I ask is that you give me credit and make a link back to my website. Thank you for asking!”
• The Cat Lady at DeviantArt has some fabulous pictures available under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 License.

Let me know if you’ve found another free/mostly free licensed image site that should be listed here.