I've been thinking about this for a while and this is what i know - people often change display pictures.
Display Pictures are not reloaded every time you close and open a conversation window, so they must be cached on your hard-drive.
Bearing this in mind, it should be possible to change someone's display picture (only locally).
This could be a feature like the now standard one to set someone's friendly name to whatever you want.
I'd try this myself, but I don't have access to a decent development computer
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