What do you think?

Given the circumstances (unopened box) it seems pretty harmless to me but of course who knows what is actually in the box? He should have definitely said something like "since mine is unopened, here is someone else's pix of the same item", or used manufacturer's image.

I think he should have e-mailed the original ad picture owner, (in this case Muzikat) and told him what he was doing and asked permission to use the picture.

Legally speaking, once you put it on the internet, it becomes public property (ask these idiot movie stars caught emailing nude photos).
Ethically, the seller should have made sure that this was footnoted clearly as a "sample" picture. Should he/she ask your permission? Why? You don't own the photo any more, there is no representation of the photo pertaining to you personally and you are not being misrepresented in any manner.
It's not like he broke into your hard drive and stole the photo?
If it bugs you so much, learn how to use photoshop and put a watermark on all of your photos.

I have emailed the seller and suggested that he should have contacted me. One issue that has come up is that my pic/ad included an optional power supply. The power supply is pictured in my photo, but by his own admission he is not sure if a power supply is even inside his unopened box.
I think it is just wrong, legally maybe not, ethically certainly.

Muzikat, I love ya, BUT I think you're making much ado about nothing on this one. If it was a pic of my child, wife, etc. then, yes, I agree. As I understand it, we're talkng about a component here. No harm, no foul. Just don't see it your way on this one.