I've been a commercial photographer for 26 years. I'm delighted to find that digital cameras, scanners, Photoshop, and ink jet printers have given me the tools to work ever more in the realm of imagination and story telling. I join original photos and scans in a new context that I'm calling photo illustration - some are more collage in approach, some more montage. Does this approach qualify in your mind as illustration? Does the fact that all the elements are photographic make it more or less illustrative?

Two words:  AMY GUIP

Brilliant photo-illustrator!  Check her work out:
www.amyguip.com

Gary

Matt Mahurin's another well-known photo-illustrator. Remember his (in)famous OJ Simpson cover for Time that generated a ton of controversy?

...as well as his portrait of Mel Gibson ('Passion of the Christ") on the cover of Entertainment Weekly (it might have been the first illustrated cover EW commissioned, methinks).
Gary

I'm not sure if the art of photo/illustration should have it's own name or not, that calling it "illustration" might not be the right title for it, but it certainly is an art in itself. Here's a link to an photographer/illustrator couple who primarily work in Children's Picture books. It's almost a bit disturbing when you look at the photo/art. I keep trying to figure out which it is, rather then just enjoy what it is:)

http://www.tla1.com/Talent/MarilynMets_PeterLedwon/METS_LEDWON.htm

I've gone on record that illustration is too narrow a category. Illosign or Destration or whatever might be considered. In the
conventional parlance illustration suggests drawing, painting, and collage. But montage is part of that too. Photography is a separate
technical genre. But photography can be used illustratively (and is). If you are working in a medium that is destined to complement or supplement a text or message, then in the broad sense it is illustration. That said, I have always preferred working with drawing
and painting (and even sculpture) in the publications I've art directed. I enjoy the tactile qualities of these materials and the
imaginative potential. With the advent of the computer I gradually started using digital media, including photographic ones. Its all one
big stew now.

In my opinion one of the best illustrators of modern times was John Heartfield, the  father of the photo montage.  (Germany 1936).  If you are not aware of his contribution to storytelling I suggest you google him.  He believed that the photographic image was the most direct way to communicate to the masses and that styled "art" often got in the way. 

More power to you - illustrate away!