I have been working on a WP7 app, it\'s image gallery app, with basic zooming and flick gestures implemented.
For test purposes I compiled the app with offline image
I have tried your code sample, but in Windows Phone 8 environment and I couldn't reproduce the leak. The only difference is that I've used my own images.
The current memory usage stayed at 13MB for my 512 WVGA Emulator and the Peak stayed at 14MB. I have pushed the "next button" around 20 times.
Also have you tried using Bindings for ImageHolder instead of setting the Source manually?
(btw, visually I don't see any possible memory leaks in your codebehind).
(Also check this article http://blogs.windows.com/windows_phone/b/wpdev/archive/2012/02/01/memory-profiling-for-application-performance.aspx )