I have done a search for this problem, but cannot find an answer!
When i got my Galaxy S2, i had no problems adding photos to people in my contact list, but just recently, every time i search for that contact to add a new photo or update it, regardless of whether the contact already has a photo or not, it comes up with "Contact not found"??
These are the steps i am using (in case there is another way):
* Open photo from Gallery
* Touch Phone Menu (Comes up with Share Via, Set as and More along bottom)
* "Set as"
* Choose Contact photo
* Type name into "Find contacts"
* Immediately comes up with "Not found"
Its not a huge problem, but would be nice to see if there is a way round this!!