I have just tested it with the latest version of the picture field, it definitely works on my site. They may have changed it, but there is nothing there that should affect the featured item module, it just needs to be able to find the image file.
One thing to note, the module uses the original image file. If you have set the picture field plugin to delete the original file then this would obviously cause problems.
Also the pictures uploads root folder is assumed to be a folder called 'uploads'. Again, it would cause problems if you call it something else.
Either of these problems can easily be solved though, it's just a slight modification to the code that determines the image url.
