Yes, I tried it here and it works fine.
I saved the .png using Gimp. I wonder if you are using the feature correctly: you have to start a new game and choose the custom portrait then. It won't work if you try to add the portrait to your game installation and then look for it to be there when you load your existing game. The custom portrait has to be selected during the creation process.
I would like to change this in the next game- meaning, you could add a mypic.png file to the game's directory and it will automatically override a previously selected portrait. However, for Book I, you have to add the portrait and select it when you are making your character for the first time.
I tested this on a Intel Mac running 10.4. I'll test it on a PPC mac next.