Trace around the image and then make that path into a clipping mask. Details of how to do this are in the manual.
kyw:
Draw a black rectangle, sized between the jpeg's edge and the outer edge of the image you wish to keep, then put that behind a copy of the jpeg, select both, go to the transparency palette, click on the flyout arrow, select "Make Opacity Mask", now in the palette itself, click on "Invert Mask", then go to Object>Rasterize, make sure to check the box for "Transparent". Now, go to the appearance palette, select "Add New Stroke" from the flyout. Go to Effects>Path>Outline Object, then go to Object>Expand appearance, deselect the path you want to keep for a clipping mask, delete the other paths you got, then make the mask.
Bert