It's easy to use a custom pic for your name in the Users menu- just have the picture on the drive and 9while logged in as that user) hit triangle and select "edit". You'll see the option to use a custom picture on the screen. Just select that, select the picture and you are done.
This only works on the Users menu so the only ones that will see it are those right at your home. As I mentioned above you can't use a custom picture in the Friends menu.