Oh yeah, they do photos, thats about all we use ours for. In fact the output is semi-glossy, so you can often get away with printing photos on stock paper and getting a photo finish effect. On thick glossy stock you get a really great result.
I'd look for a good sale in the office supply stores circulars, check out fatwallet, or check out costco/sams club. Trick is to balance price with the number of pages the toner can put out. The one I bought came with FULL toners (7500 pages) from Sams Club.
Another option is to look closely at the refurbished color lasers from Dell. Some of the higher end ones are pretty expensive but they come with big toner carts in them, so cost per page can get ridiculously low.
I think I saw one of their top end color lasers with 10,000 page toners for around $500-550 a couple of months ago. Compared to an el cheapo $99 version with 1500 page toners, the big one is a better buy. Unless its going to take you 12 years to print 10,000 pages.
Also watch out for the black toner cost and printing regular text on a color laser. A lot of color lasers use a little bit of black for the photos but obviously a lot on b&w text output. And the replacement b&w toners are $250-300. Those you wanna just use for pictures.