I have an aria, and its never updated, not even my picture. I even deleted a contact and redid it, and it came up with the old picture. Its almost like they purposely made it not work, because the ways that should work don't.
I played around with it and figured out a way. It's a real pain, but if you have to have it done, it works. I'll do it step by step the way I did it, but if you find a shortcut let me know.
1-Delete your facebook account from friendstream (Settings>accounts and sync>facebook>remove account). You should see all the pictures disappear from your contacts.
2-Log back in to facebook (use the same steps).
3-(not sure if this is needed for everyone, but I had to do it) On your computer, change your employment location info (I added a new employer, put in a location, saved, then immediately went back and deleted it). Another post on the forum mentioned the employment thing for someone who replaced there phone and couldn't get their friends to show up, and mine didn't show up until I did this.
4-Go to your list of friends (hit menu in friendstream) and refresh (hit menu again). Mine threw me back a screen and gave me a connection error message, but some of my friends still showed up. I had to do this a few times to get all of them to appear, not sure if you will have to.
5-Go to your contacts, then leave it alone (possibly close it, don't remember what I did) for a minute or two. When you go back, a good portion of your contacts should have new pictures. You may have to manually link the rest, but the majority of them did it automatically for me.
Like I said, a real pain, but it doesn't take too long (my directions make it look longer than it is). I don't get why this isn't built in (or why its not working if it is), but if its important enough, doing this every once in awhile takes care of it.
One last thing, if you use handcent, you have to restart your phone for the pictures to show up there.
Sorry for the complicated post, hope this helps someone!