The great thing about Android is that there is an app for pretty much anything you can think of. When I first started using my Android phone I wasn't impressed with the photo quality of incoming calls. I though, wouldn't it be cool to have a full screen photo of who ever is calling you.
What I found was "Ultimate Call Screen". The application lets you add a full screen photo for each one of your contacts. In my case I only have 16 contacts on my phone. I had to go through via photoshop and create photos of each person on my list for the screen resolution of my phone (480 by 800). It took some time, but when someone calls me from my contact list it looks really neat.
This program makes it really easy to look at your phone and see who called. It also looks REALLY nice if you missed a call from your contacts. I can't show what that looks like, but it gives you a # of missed calls with an arrow on each side. If everyone who you missed a call from was in your contacts, you can press the right arrow and see a photo of each person who you missed a call from. You can also get different themes for the buttons.
When you get a text, the text appears in a transparent box on top of the photo, so you can instantly know who the text is from. Below are some sample shots from my phone, with the phone numbers edited out of course. They weren't really calling me I was just using the preview mode for each contact. I really like this app
If you don't have a photo for someone it will use this one. You can't change the default image, it comes with the theme. In the screen shot above if that came from my dad or sarah their photo would be under the text. When you press reply it opens up your default sms client.
Because I didn't have any missed calls (it says 2 because I called myself twice), I called my cellphone from my home phone. Notice the arrow in the bottom right and left, that is were you can flip through the photos of the missed calls (assuming you have a photo of them)
This is one I created to replace the default wallpaper when someone calls who is not in your contact list.