The problem is with a bug in the iPhone software in the way contacts are synced over Exchange and MobileMe. Pictures aren't synced correctly and in some cases causes FriendSync to crash. This is currently still a problem in the 2.2 firmware.
Since NuevaSync appears to emulate Exchange to get over the air syncing to work, it has the same problems as Exchange itself. Apple has said they are working on a fix for this issue.
The problem can also be replicated sometimes by manually setting a contact's image from the built-in Contacts application. It will sometimes crash the Contacts app which leads me to believe there is also a problem in the NuevaSync implementation of the Exchange protocols.
Rob Farmer
FriendSync
FriendSync for the iPhone