Your solution probably will end up being a lot better (seeing that you have a summer to work on it), but I simply tried to use
and
to generate rasterized version of small LaTeX statements.
For the life of me, I can't find my old code, but maybe this is a decent starting point. mimeTeX is a pretty limited implemenation of a LaTeX parse and doesn't use the standard fonts. mathTeX, on the other hand, uses an underlying LaTeX installation to generate the image of the _expression_ and crop it accordingly. I had also just tried to do my own calls to generate a PDF page, use pdfcrop, then convert to a raster, but mathTeX was doing something that made it much, much faster (e.g 200 per second).
Hope this helps you get started, and I am looking forward to having TeX support in plot text objects!
John Swensen