Maybe it's because I'm not a power user, but I think that this is one of the coolest things I've heard about the iPhone. I have no reason to believe or not believe the OP, but I do know that I've struggled to find a reason to use the onboard camera on some of my previous phones. I thought that the iPhone camera would similarly go to waste, but now I can't wait for this feature.
Unlike some of the other posters in this thread, I don't have a ton of contacts and it'd be easy to snap a picture when putting someone's number in. I'd very much like to see this an option at least when I get my hands on my new iPhone. If you haven't noticed, the general design for the iPhone is very visual (pics, movies, maps, true web browsing, etc...). This is just another extension of that idea. It avoids giving us more text to look at and leverages the iPhone's ability to display pretty graphics. It makes the experience more personal, very Apple indeed.
