Hi Dave!
You can find a couple of different guides here:
http://www.inivis.com/secondlifesculpted.html
http://www.independentdeveloper.com/...rom_existing_3
The important thing is that you UV map your object first. If it's not UV mapped correctly, it won't work.
To save some $L, don't forget you can preview the image in the upload window *before* you upload. When you select your image in Second Life, choose "preview as: sculpted prim" to see what it will look like before you actually upload the file. If it doesn't look right, you can click cancel without spending anything. Also, you can often preview things for free by connecting to the SL beta grid instead of the main grid.