Email Text vs Attachment
 

Rather than attach the log file to an e-mail message can a file be imported into the main body of the message?

Yes. This is from the System Scripts help topic (also demonstrated in the 'Show contents' step of the Misc.bld sample):

[vbld_FSO.OpenTextFile("filename").ReadAll()]

Add this to the Message field of Send Mail action to add the contents of a file to the message body.

Thank you very much for the info.

As an added question, is there a way to pass message type through the SMTP server so that an html formatted message could be sent to a mail client? I have only seen information on basic smtp parameters such as TO, FROM, SERVER, etc...

Not (currently) with the Send Mail action. A couple ways to do it:

1) Call CDONTS (I believe this comes w/ IIS) from a Run Script action: http://www.devasp.com/Samples/Mail3.asp

2) Call blat (http://www.blat.net/) from a Run Program action:
blat "drive:\path\to\filename.htm" -server -f -t -s "subject" -u -pw