Open contact > pick one you want to change > menu> edit > left of the name you will see a profile picture click on that and you will get a drop down menu gallery, camera etc. Pick what you want to show up when that person calls you. That's it.
what you guys are explaining is how to set picture caller ID, I think he wants to know if you can change the default android guy picture for all incoming calls. :-\
which to my knowledge...it cant be done
I know exactly what you want and there's only way I know of to do it...grab RocketDial off the market. It has a dialer, a contact manager and overrides the caller ID once you adjust the settings. It also asks what you would like your default picture to be and uses HD pictures. I have used it for my last 3 phones.