I talked to the Verizon people and they talked to the Motorola people. The conclusion so far is that after the update to Jelly Bean, this widget we all were using did not make its way into the compatibility of the new OS. This could mean one of three things: 1) This is an unforeseen problem that will be addressed with another update; 2) There is a replacement for this widget in the works; 3) We're all outta luck and have to live without this widget.
Now I found a semi-solution to this problem. Go to the 'People' app and click on a contact. Next click the 'Menu' touch pad button and there is an option called "Place on Home screen". If you click that, the contact will show up as a 1x1 sized widget on the screen. When you click on it, you'll get all the options you got from the Favorite Contacts Widget.
I know it's not optimal, but it works well enough for me.
I have a Motorola RZR with the same problem; this answer only applies to the pics within your contacts; it does not resolve the issue with the pics displaying in the widget. All pics display correctly if you view them in the People App, including the favorites tab. This is a fabulous widget and I'm hoping you are working on a resolution for the next update because wasting an entire screen page to display individual contacts just to display the pic is not an option!