That is exactly what I did and I cannot see the pictures that I saved to the people folder from the contacts app. If I explore the internal storage, I can see the pictures that I saved to the people folder, but I cannot see Einstein or Gandhi. When I go to the contacts and try to add a picture, I see Einstein and Gandhi and not the pictures saved to the people folder. It also says Hall of Fame above Einstein and Gandhi's pictures in the contacts app. It appears as if my contacts app is looking in a different location for pictures than the people folder.
What software version are you on? I am on 5.0.0 Build 1583 and no upgrade is available. What file types are you using? I am using .jpg and .png and I cannot see them from the contacts app.