I think you are making a confusion between .NET resources, and Win32 resources. The resources you add embedding with the /res argument to csc.exe are .NET resources that you can successfully read using you ResourceManager snippet code.

Win32 resources are another beast, that is not much "compatible" with the managed .NET world in general, athough you can indeed add them to a .NET exe using the /win32Res argument - note the subtle difference :-)

Now, if you want to modify embedded .NET resources, I don't think there are classes to do it in the framework itself, however you can use the Mono.Cecil library instead. There is an example that demonstrates this here: C# – How to edit resource of an assembly?

And if you want to modify embedded Win32 resources, you code needs some fixes, here is a slightly modified version of it, the most important difference lies in the declaration of UpdateResource:

    [DllImport("kernel32.dll", SetLastError = true)]
    static extern IntPtr BeginUpdateResource(string pFileName, bool bDeleteExistingResources);

    [DllImport("kernel32.dll", SetLastError = true)]
    static extern bool UpdateResource(IntPtr hUpdate, string lpType, string lpName, short wLanguage, byte[] lpData, int cbData);

    [DllImport("kernel32.dll")]
    static extern bool EndUpdateResource(IntPtr hUpdate, bool fDiscard);

    public static void Main(string[] args)
    {
        IntPtr handle = BeginUpdateResource(args[0], false);
        if (handle == IntPtr.Zero)
            throw new Win32Exception(Marshal.GetLastWin32Error()); // this will automatically throw an error with the appropriate human readable message

        try
        {
            byte[] imgData = File.ReadAllBytes("SetupImage1.jpg");

            if (!UpdateResource(handle, "Image", "image1", (short)CultureInfo.CurrentUICulture.LCID, imgData, imgData.Length))
                throw new Win32Exception(Marshal.GetLastWin32Error());
        }
        finally
        {
            EndUpdateResource(handle, false);
        }
    }