Images from Google contacts do show up as the contact photo on the phone. Likewise, so do photos from contacts synced via Outlook and the USB cable. You can also add (or change) the photo by picking one from your phone's storage or by shooting a photo with the camera.
Facebook friends aren't automatically added to contacts. If you have that person entered as a contact already, you can edit their record and choose to sync to Facebook which will then pull down that person's Facebook photo and their birthday. If you do use that Facebook photo, it will sync back to Google contacts.