Use of Stock Imagery-What is the moral responsibility? Are derivatives ok?

I use compfight.com.
It's safe and legal, as long as you choose the Creative Commons license.
So I would recommend that.

Hi I use Creative Commons search for images http://search.creativecommons.org/ Am not sure about the question of moral responsibility for non-creative commons images i.e.
if you alter the original image can you still go ahead and use it without compunctions so i leave it unanswered.

I am a creative director and an intermediate level photographer and I have had similar issues and altering an image to make it useful for you is lying to one self...
either you click those images yourself or buy them, one more thing...try and get lucky over www.sxc.hu, you can use images from this website anywhere you want to...
On how you should handle this, I believe you've already done your part by notifying the team leader of the risks to using the copyrighted images without permission, if I were you I'd make sure to have emailed him / her my concerns CC'ing the Higher Manager / Creative / Art Director so you have a proof of the notification and are not to be blamed in case your company is confronted.
its a job for you and boss is always right so you've got to do what they ask within the limits of course...limits? you've got to decide for yourself.
I hope it was helpful.
Regards Jasninder www.jasninder.com

The images in stock image libraries are there for the profit and livelihood of photographers.
Using one in any state (altered or not) without permission (usually in the form of purchased licensed use) is morally wrong.
Yes, you can get away with it, but if the question is morality, then you're stealing someone's idea and using it for your own benefit.
It's the same as piracy--and if left unchecked, these photographers will lose the resources to create new additions to the stock library, and it will one day shrivel up and die, leaving us with nothing.
I often use stock images to get an element from one and create and compose a totally new one from a dozen other photos during the comprehensive stage.
If the resulting image is too close to the original, then I have my clients purchase the images for the respective license and use and just rely on some Photoshop magic to get what I want.
If not, then I usually have a photographer shoot my creation.
Simple rule: if you found it on the internet, somebody put it there and somebody owns it.
You don't have permission to use it unless explicitly granted.