I just fired up paint on my laptop. Created a 256x256 picture, made a solid background, added the contact name as text, saved as a jpg, copied over to my n900, used that for the avatar.

Now, for contacts that didn't have a picture, the picture has their name. So in MyContacts,I can see who it is. Doesn't help it you have a lot of contacts, but I did 30 in less than 1/2 hour.