For lack of a better term, I'm calling this a painted buttercream transfer...It's a multi-part process, and I can't help you on the "I can't paint" part of it, but it can give you a really good result if you go slowly and take your time.
This was my daughter's birthday cake and I was only 8 months late this year. Both of my kids have birthdays during peak wedding season, and I tell them every year that they can have a crappy cake on their birthdays because that's all I have the time to manage, or they can wait and I'll do a nice cake at my convenience. They usually opt to wait.
So this year I decided to do a portrait of Keith Harkin, who's her favorite singer, for my daughter. He's very cute in a Shaun Cassidy-esque way. Those of you who are of my generation will understand what that is. But I do have to say that he's a much better musician than Shaun was, and I can actually listen to his album and enjoy it, so he's got that going for him. Here, see what I mean: http://www.youtube.com/watch?v=e0p9HrsbXA0
Anyway, we start our process with a picture of the subject, enlarged to the size that you need it to be
to fit on the cake. Cover that with a piece of waxed paper and tape it flat in place on a cookie sheet or something if you need to. I'm lazy so I didn't do that, but it helps to keep the paper from shifting around while you're working on it. If you're really concerned about realism, or you have text in your image, you'll need to do a REVERSE IMAGE to work from because you'll be flipping it over eventually.
Next, use a light color that coordinates with your image to pipe the outlines. Since Keith is a blonde, I used a darkish beige. A dark color like black will be too harsh and contrasty on your final image for most portraits. Use a small piping tip to do this, nothing larger than a 2 at the most. You're going to lose a lot of these outlines in the process, so don't worry about that. Outline the basics and any darker areas, like the hair.
Next, add the highlights in the hair. and stick the piece in the freezer for half an hour if you think you're going to smear it during the next step.
Now comes the part that I can't help you with that much...For the skin tones, you'll need to use a paintbrush to apply the icing. Put any lighter colors on first, then work down to darker tones. You'll have a chance later to correct the shading, though, so don't stress out about it too much. Be careful to not smear the outlines, though, since that will be harder to fix. The better you do the shading duringthis step the better the final piece will look, so take your time.
Do NOT bother to do the eyes or the teeth at this point. Teeth are hard to do without making people look like horses, and the eyes are going to be too small to do with the paintbrush and not smear the outlines. Don't worry, we'll get to those later.
Put the entire thing in the freezer for half an hour, or an hour if you're nervous. It will harden up and be ready for some abuse in the next step.
Take it out and IMMEDIATELY pipe a thick layer of white icing over the areas that have the outlines, especially the eyes and the mouth, where you don't want the outlines to smear. Work fast so you cover everything before the icing softens up, then stick it back in the freezer for another fifteen minutes at least.
Take it out of the freezer and cover the rest of the image with white icing, then smooth it out. Freeze it again for at least half an hour to get it good and stiff.
Now you can remove it from the freezer, place it icing side down on a crumb-coated cake (not an iced cake or there will be way too much icing on it, believe me on that) and press it gently with a fondant smoother or another cold thing to adhere it to the cake. Don't use your hands because you could warm it up or press fingerprints into it. Peel the waxed paper off.
So now you have the basic outlines. You'll probably have some distortion but that's okay, because you're only about halfway through!
Using a very small paintbrush and some brown food coloring (again, black is going to be too harsh unless the colors in your picture are really dark and contrasty) start adding the details, using the original photo as your guide. You could have done some of these before painting on the skin tones, but that generally results in smears, and removing the waxed paper can sometimes pull off the very top layer of the icing. So if you have a thin layer of five-o'clock-shadow, for example, that might stay on the paper when you pull it off. It's better to add those details now. Add to the shading of the skin, shadows in the hair, etc, with colored icing and straight food coloring, depending on what detail you're working on.
Be very careful doing the teeth...I mentioned before that when you try to add the lines between teeth it often makes people look like they have horse teeth, so it's best to do the outlines and leave it at that. Just use a light hand.
If you put too much color on, use the end of the paintbrush, or the tip of a knife, to remove some of the icing.
Now add the small details in the eyes with a tiny brush and more icing. You could do this first if you're nervous about smearing the icing.
So there you are, a portrait on your cake...Now who gets to cut into his lovely face first? That's the only drawback, you won't want to cut it.