How to wrap this Link with an Image?

Try passing in the image into the functions themselves:

<?php 
$previous_image = "<img src="http://domain.com/path/to/image/" alt="Previous Posts">";
$next_image = "<img src="http://domain.com/path/to/image/" alt="Newer Posts">";
?>

<span class="nav-previous"><?php previous_image_link( false, $previous_image ); ?></span>
<span class="nav-next"><?php next_image_link( false, $next_image ); ?></span>