Its a nice idea having a pic of everyone but not many of us have a pic of every contact in our phones.
I don't even have pics of my friends because its a bit weird asking your mates 'let me take a picture.' If you're a guy and you ask your guy mates they think your gay and if you ask a girl they think you're stalking them.
I went through awhile ago and added as many pics as I could find to the Address Book. I like having them in there for my phone as well as programs like Adium, which let you set the Address Book pic as their buddy icon.
i just took a lot of my friends pictures from facebook and put them in ... it's a picture you know they like, and you don't have to go asking them for it...
Space is the worst arguement for not having a picture.... those image files are so small that you wouldn't even be able to load an extra iTunes song if you deleted them all!