The true is I'm using my own tools and techniques that helps me to create this kind of illustrations. It's something like a chain of tools, highly experimental, that looks more like pure code without a proper shell. For me it's ok because I can add modification to the code on the fly when I want to try a new idea or something.
So I'm not using any other software like photoshop nor illustrator. Of course I need an image editor to deal with the seed image, but from that point I use only my crazy tools.
I can point you to some application you can find out there (some of them freeware) that could help you to do something similar. Textorizer, Digital Auto Painting, Andrea Mosaic or a brand new app for Iphone called FotoWord or WordFoto. Also there are a lot of tutorial explaining how to do it 'by hand', just do a quick search using Google!, for example: [link]