[Octane]

<style>
.content {
    border: 2px solid #f00;
}
.wrapping {
    margin: 10px;
    border: 2px solid #0f0;
}
.smallpicitem {
    margin: 10px;
    border: 2px solid #00f;
}
</style>
<div class="centerbox">
    <div class="content">
        <div class="smallpicitem">IMAGE INSIDE 1</div>
        <div class="smallpicitem">IMAGE INSIDE 2</div>
        <div class="smallpicitem">IMAGE INSIDE 3</div>
        <div class="smallpicitem">IMAGE INSIDE 4</div>
        <div class="smallpicitem">IMAGE INSIDE 5</div>
    </div>
</div>
<script src="http://ajax.googleapis.com/ajax/libs/jquery/1.4.2/jquery.min.js"></script>
<script>
$(function () {
    var $wrapper;
    $(".smallpicitem").each(function (index) {
        if (index % 2 == 0) {
            $wrapper = $('<div class="wrapping"></div>');
            $wrapper.insertBefore(this);
        }
        $wrapper.append(this);
    });
});
</script>