I love receiving photo cards of any sort, because often this is the one chance each year I get to see old friends who live far away. I keep the photo cards we receive from year to year and enjoy looking back at them to see how everyone has grown up. We do a photo card for the holidays and use a photo of our entire family (as opposed to just the kids, though frankly my kids are much more photogenic than DH or I!), and I write a note to each recipient in the card (or this year, on the back of the card, since it won't be a foldover). I've never thought of it as being vain, probably because I like receiving them so much.
We actually do send them to a couple of DH's coworkers, because he has a few who are constantly asking for photos and updates on our kids. Otherwise, though, we just send cards to family and close friends. I usually keep a stash of more generic holiday cards (without photos) to send out if we receive an unexpected card from an acquaintance.