Ok, got it sussed.
The image in \GalCiv3\Mods\ModName\Gfx\Factions\LeaderFGs\whatever.FG.png shows up on the faction select screen, AND when the game loads on start screen, and its the same for your mod also, I just tested, it gets used twice.
The image in \GalCiv3\Mods\ModName\Gfx\Leaders\StartGameWhatever.png does nothing whatsoever, as in, it does not show at all, which is why, when you remove the defining line in FactionDefs that points to it, it makes no difference, as the actual image that is loading, is the one in \GalCiv3\Mods\ModName\Gfx\Factions\LeaderFGs.
Sure enough, when I put the Davros image in the \LeaderFGs\ directory, then it shows in game, but in two locations as stated above.
Which begs the questions?
What does <StartupImage>StartGameImage.png</StartupImage> do?
Can't one have a differing image in both those locations?