Yes you are correct, I think how the livetile is implemented is just waste of space as it shows all pictures randomly. How about showing people who are online, or having some other real function?
I had a similar need, where I didnt want see someone. We stopped seeing with one girl and it was annoying that her face would popup all the time on the tile, often in big size too. Deleting the contact was not something that would made sense, but I found a solution that worked for me. I have contacts linked to FB where the pictures are pulled. Also my people hub shows only contacts from the ones I have saved card with, so its not showing atumatically everyone from FB. The FB only contacts are shown in search results anyway. I ended up unlinking that specific contact, so she didnt have picture on her card anymore and no more picture poppin up to the tile all the time.
Now I anyway use the small tile because the bigger tiles dont have any real function....