recently, in response to a post on comp.text.tex, Ian Hutchinson posted a short piece of code to do this job.
the abstract i've written for the catalogue says Provides a Plain TeX macro figflow that allows one to insert a figure into an area inset into a paragraph. Command arguments are width and height of the figure, and the figure (and its caption) itself. (Does not work with LaTeX.)
i asked (and was given) permission to put the file on ctan, and have installed it on ctan in directory macros/plain/contrib/figflow
Robin Fairbairns
For the CTAN team