My latest Chrome, Firefox, and Safari clip the image to the container’s border-radius (as intended).
http://jsfiddle.net/RQYnA/12/embedded/result/
In Firefox 15, I see the image clipped when the container has {overflow: hidden}. (Clipping of child content seems to have been added in Gecko 2.0.)
In Chrome 23 & Safari 5, I see the image clipped only when the container has {position: static; overflow: hidden} and the image has {position: static}.