There are 2 possibilites I can think of:
1. I read a page on this once, can't remember the exact wording, but it was something along the lines of...
"Trojans normally come in files that are run, not read, but if there is a SERIOUS problem (very unlikely) with the program that is reading a file then it might allow malicious code to be executed."
^No idea if that is true, but sounds plausible (even if incredibly unlikely).
2. I would expect that if you know several people who have been infected by JPGs, then the majority would have opened "coolpicture.jpg.exe" with "Hide extensions for known file types" on in Windows (that is the default). If that was the case then in Explorer the file would have shown as just "coolpicture.jpg" and looked completely harmless.
