Yes, you can modify FormMail to send HTML mail.
You need to acquaint yourself with the MIME standards for mail.* This URL is a good place to start: http://www.faqs.org/rfcs/rfc2045.html
There's quite a bit of work required to produce an HTML email, but if you're keen, the above will get you started.
NOTE: Version 2.00 and above of FormMail now supports HTML emails directly. See the HOW-TO guide for full information.