I agree. The outlines are really helpful for selection, but they're a nuisance when you're aligning things in setup mode because they occlude the actual edges of images.
@Nate/Shiu, my vote on the solution: hide the outline when the mouse button is held down during transformation. AND have an easy-to-reach toggle somewhere (useful for when we get keyboard nudge, or when the user wants to type exact transform values for alignment).
