Big J are you still having problems with the contacts?
The only way I could get contact pics to show up across all applications, (i.e. mms, phone, etc)..that I didn't have a saved photo on google (which are the majority), was by "joining them" with facebook. If I just "sync'd" with fb, the pic would show up in contacts, but not in other applications.
When I "joined" them, it worked for me. I now get pics across all applications. Unfortunately if you wipe data/factory reset you obviously have to re-do it. one of the drawbacks.
"Sync" may work, I was just too impatient to wait and find out.. I was tired of not having the pics in mms/phone.
let me know if you need help with the joining process, your a smart dude, so I am sure you'll figure it out. It's tedious, but I haven't found another method..
I guess you could save the pic and store on google somehow... I may look into that..