Hypersmurf said:No, it doesn't.
As long as they don't actually hit me, I don't even know what square my opponent is in.
Roughly, yes it's sensing, or can be treated as sensing. Even if you don't get it by the attack your AC is affected. Saying you didn't sense anything is similar to saying you weren't wearing armor or didn't have a deflection bonus unless you got hit. There are other ways to interpret the source of the Blind-fight feat benefits, but this works fine and solves the issue you are raising.
The DM would let the PC know which squares he can see images in. There might be more than one in each square, but they're certainly not all limited to one square. If the PC closes his eyes, he picks a square and attacks, just as he does whenever he attacks while blind. If the square he chooses has the caster, he's got a 50% miss chance. If it doesn't, he's got a 100% miss chance.
If the DM decides that in that particular round, all the images are in the caster's square, the choice of square is easy. If he decides they're clustered through four squares, it's harder. If he decides they're spread through nine, it's harder still.
-Hyp.
So what of PCs, are they limited to one square? That's not a solution, that's a starting point, a starting point you didn't follow out from very well (much as Skip didn't when he used the word "see"). You are missing a MUCH longer list of items than your relatively limited occurance example you lauded. For example:
Which squares do the images reside in. Random? If not random, what are the rules?
What happens if all the square around the Mirrored character are occupied?
What of the significantly increased power of the spell this creates regarding AoE spells/powers when the images are spread over multiple square?
The increased power it has over blocking movement by threat of AoO?
Are others allowed to move into a square occupied by only illusionary replicas? If so then what happens? If not, why not?
EDIT: Ooo, I should have also included flanking created by the figments that are not in the square. We have determined that by RAW illusions can create flanks.

That's for starters. You have gone to a very bad place, a place occupied by facing rules and incorporating distances between 5' and 0'. Trying to unabstract the D&D combat grid.
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