Use an image instead of a menu link in Drupal 7
I am answering my own question, as I googled and found something, mixed it and carved my own way to do it.

function mytheme_menu_link(array $variables) {
  global $base_path;    
  $element = $variables['element'];
  $output = l($element['#title'], $element['#href'], $element['#localized_options']);

  if($element['#title'] == 'Home') {
    $element['#localized_options']['html'] = TRUE;
    $get = '&lt;img src="' . $base_path . drupal_get_path('theme', 'arras') . '/linkback.png" style="vertical-align: middle;" alt="' . $element['#title'] . '" title="' . $element['#title'] . '" /&gt;';
    $output1 = l($get,$element['#href'], $element['#localized_options']);
    return '&lt;li' . drupal_attributes($element['#attributes']) . '&gt;' .$output1    . "&lt;/li&gt;\n";   
  } else {
    return '&lt;li' . drupal_attributes($element['#attributes']) . '&gt;' . $output . "&lt;/li&gt;\n";
  }
}