How can I read in an image in Verilog?
In this case, it might be a good idea to preprocess the image into an intermediate format with a different programming language that actually has image manipulation libraries, such as Python with PIL.  You really don't want to have to deal with parsing the MIF format in Verilog.  Once you've read in the image, then you can write out a 160x120 array in a format that you can read in easily in Verilog.