The thing you have to remember is that the box model doesn't always constrain you as one would think. Sometimes using negative values for your margin can get you some interesting results.

This has been tested in FF 2 and IE 7.

.imgHolder img {
   margin-top: -5px;
   margin-left: -5px;
} /* position the image -- this assumes the light is coming from the top left of the page */

.imgHolder {
   background: #999;
   padding-right: 3px;
   padding-bottom: 3px;
   width: 303px;
   height: 303px;
} /* the container to show the background "shadow" */

.imgContainer {
   float: left;
   width: 306px;
   margin: 5px;
} /* used to float the image and background to left so we can place the text to the right!!! */