Rated 4 out of 5 stars

For those who are still having trouble with the direct image links (for example getting the &usg=... crap in the links, causing it to 404), you may need to make 2 changes to the javascript file, not just 1:
You MUST CLOSE Firefox or the file will not update.

Find "customizegoogle.jar"
In "\Documents and Settings\Application Data\Mozilla\Firefox\Profiles\60esbr6h.default\extensions\{fce36c1e-58d8-498a-b2a5-66ad1cedebbb}\chrome\"
or
"C:\Users\\AppData\Roaming\Mozilla\Firefox\Profiles\60esbr6h.default\extensions\{fce36c1e-58d8-498a-b2a5-66ad1cedebbb}\chrome" for vista

Open the file with Winrar.
Find "javascript.js"
In customizegoogle.jar\content\customizegoogle\

Drag and drop the "javascript.js" file to your desktop
Edit "javascript.js" with notepad or similar.

change (approx line 31):
var googFonts = selectAllNodes(document, document.body, "//FONT[contains(@color,'#008000')]");
to:
var googFonts = selectAllNodes(document, document.body, "//DIV[@id='ImgContent']//FONT[contains(@size,-1)]");
(if you have already done this you will probably be getting &usg= in the page links)

change (approx line 42):
var urlmatch = googLinks[x].href.match(/\&imgrefurl\=(.*?)\&h=/);
to:
var urlmatch = googLinks[x].href.match(/\&imgrefurl\=(.*?)\&usg=/);

Save the file.

Drag and drop the "javascript.js" file back into the Winrar window.
Winrar will show a small window, click OK.

Open Firefox and try a image search, It worked for me :)

(big thanks to kadusa, SomeOtherDude, and Glav for actually figuring these out, I just put them together)
Wouldn't it be nice if someone actually developed this extension.