Ctools Custom Content Type Plugin with Image Field
You should try to put this line:

form_load_include($form_state, 'inc', 'my_module','plugins/content_types/my_file');


at the top of your content_image_pane_edit_form function, replacing my_module and my_file with your module and plugin include file.

Ctools panes are generated in a separate modal from base Drupal forms and so when the AJAX reloads the form it cannot find the original form function. By forcing Drupal to include the full form code each time it is processed, the AJAX will be able to find the necessary function to rebuild the form.

Tested working with Drupal 7 &amp; panes on a production site.