Can you paint on the label side of a CD? If so, what kinds of paint would be safe for the drives?

Very risky.

Even the slightest bit of weight can unbalance a disc and cause it to wobble violently when it spins up. You can try this reasonably safely by placing a small piece of tape on one side; when you use the disc now the sound is clearly different.

Oil and acrylics I think would be out of the question. You may get away with watercolour if you can find a thin enough piece of paper to cover the whole disk.

This is a very old question, but since it's been resurrected anyway there is a solution which may be cheaper than a CD printer.

You could get a LightScribe drive and disks and engrave pictures on disks using the drive.

Here's an example from Wikipedia of such disk: