The image must be very small. The user in the video demonstration uses images that are 3x3 pixels. (Photos of that size have already been compiled for iPhone users and can be uploaded from this Weebly site.)
We know for sure this method can be used without altering the device's software. Our staff has had success with the trick, which begs the question: How could this happen in the first place?
Apple should probably chalk this one up as a "hidden feature," rather than an odd software overlook. In any case, we can now all start walking around with fake-looking real iPhones—because rounded rectangles just aren't the same as circles.H/T Cult of Mac