But I found that using iChat, you can edit info on a buddy in the buddy list and select a new photo in the same drag and drop manner. But when you select the photo in iChat, it allows you to resize and crop part of photo for use as the buddy icon. This icon is also copied over to the Address Book. So I add a contact to iChat from my Address Book using a fake AIM address. The I can select the photo using this technique, saving me the need to edit or crop photos by hand.
Be sure to remove the person from your Buddy List when done and remove the AIM info from the Address Book to prevent invalid info. Not all that great of a hint, but I thought it was kinda cool.

