Here is a bug report for contact images. There are three problems associated. This is something that I've been trying to diagnose for a while, but the symptoms have been all over the place. After testing for a good 2 hours, I finally figured it out.
Without facebook installed, you will have a list of contacts that syncs with google (assuming you have "sync contacts" checked under accounts > google). None of those contacts will have facebook profiles tied to them since facebook is not installed. Therefore, they will not have any images unless you have images within their profile under your gmail contacts list.
The rom advertises that contacts will sync with facebook. So now, once you install facebook, the contacts will in fact sync, to an extent. Upon installing facebook and logging in, your login info will automatically be added to "Accounts" within your droid. From there, every contact that has a name matching a friend on facebook will have a facebook profile tied to it under your contacts list. If you have a contact named XXXABC DEF or ABC DEFXXX where the X's are random letters or spaces, and the contact's name in facebook is simply ABC DEF, then that contact will be tied to that facebook account anyway (this is a good thing, it's meant to be intuitive). Ex. a phone contact named Joe Vin will be successful in being tied to a facebook contact named Joe Vinny, and vice versa.
Now for the problems:
The smaller problem arises in that your contact images will not show up until you view them in facebook. Meaning you will have a full contact list and the contacts will have facebook profiles tied to them, but none will display contact images until you click their facebook profile link under their contact info, or go straight to their profile within facebook. After that, their picture will autoshow within contacts or if they call you, etc.
The bigger problem is that "sync now" under accounts > facebook in your phone essentially does nothing. This means that it will not update anything within your contacts. If a contact changes their photo for instance, you will need to again directly view that contact within facebook in order for their photo to get updated in your contact list.
The biggest problem is that if you add a new contact, it will never get tied to facebook at all unless you 1) uninstall and reinstall facebook, or 2) go to accounts > facebook > remove account, then readd the account by going to your facebook app and logging back in. Either of these will essentially remove all facebook profile links within your contact list, and then readd them, which takes the phone some time.
All three problems are assumed to be resolved by fixing "sync now" within "accounts > facebook" so that it actually does what it's supposed to do, as opposed to doing nothing.
Addendum: if you have contact images within your gmail contacts list, those images have priority, meaning no matter what you do in regards to facebook, the contact image from your gmail contact's list will always be displayed in your phone's contact list.