Converting image to base64

What about trying:

public static BitmapImage base64image(string base64string)
{
    byte[] fileBytes = Convert.FromBase64String(base64string);

    using (MemoryStream ms = new MemoryStream(fileBytes))
    {
        Image streamImage = Image.FromStream(ms);
        context.Response.ContentType = "image/jpeg";
        streamImage.Save(context.Response.OutputStream, ImageFormat.Jpeg);
        return streamImage;
    }
}

I agree with Alexei that your code for reading the image in does look a little strange. I’ve recently written some code for a similar task that I was doing which might point you in the right direction:

       string fileContent = null;
        /* Check the file actually has some content to display to the user */
        if (uploadFile != null && uploadFile.ContentLength > 0)
        {
            byte[] fileBytes = new byte[uploadFile.ContentLength];
            int byteCount = uploadFile.InputStream.Read(fileBytes, 0, (int)uploadFile.ContentLength);
            if (byteCount > 0)
            {
                fileContent = CreateBase64Image(fileBytes);
            }
        }

    private string CreateBase64Image(byte[] fileBytes)
    {
        Image streamImage;
        /* Ensure we've streamed the document out correctly before we commit to the conversion */
        using (MemoryStream ms = new MemoryStream(fileBytes))
        {
            /* Create a new image, saved as a scaled version of the original */
            streamImage = ScaleImage(Image.FromStream(ms));
        }
        using (MemoryStream ms = new MemoryStream())
        {
            /* Convert this image back to a base64 string */
            streamImage.Save(ms, System.Drawing.Imaging.ImageFormat.Png);
            return Convert.ToBase64String(ms.ToArray());
        }
    }