Um, yeah, I don't think it's the software.
You have a few basic issues. 1. Your homemade wooden router will never be able to mill to a depth difference of .0001". Most pro machines that cost 50-100k can't do that. I would be surprised if you could see a difference of .01" in depth. 2. The material you are carving on is too porous to give you a photo carved relief. Something more homogeneous, such as plastic or maple, would yield better results.
Maybe try something more pronounced like a black and white pattern. Work from this to see what settings you need to change to get better results with a greyscale image.