the iPhoto mini widget back in December, and since then it has received quite the feature update and face lift. The widget is now resize-able and just plain sexier. In addition to being able to browse all your iPhoto albums complete with image counts, you can now set the current image as your desktop wallpaper with a single click. The little gear icon you see offers the ability to open the current image in four apps: Preview, Mail, Safari and a custom app you can define on the back of the widget.
The iPhoto mini widget is free and available from DashboardWidgets