It's best practice to optimise images prior to conversion via a tool such as SmushIt, Image Optimizer or PunyPNG.

Embedded images should be stored in cacheable files such as flat, not dynamic, HTML and style sheets. Data URI style sheets should be cached long term, rename the file on each update.

 Note: The file size increases by approximately 30% which may be offset by serving as part of a compressed (gzip / deflate) file. Take a look at this simple gzip content method.

Note: IEv8 has the lowest maximum data URI size of 32768 Bytes. Upload here is limited to that maximum. Because of the approximate 30% increase in the conversion it is still possible that the result may be larger than IEv8 can actually handle. This limit does not exist in IEv9+. Note: base 64 data URI embedded images do not work in IE less than version 8. Personally I circumvent this issue by having one style sheet which contains image reference data for IEv6 & 7, and a second, served by a conditional comment, containing data URIs: