Each account you set up on the phone is a potential phone book. Your phone is pulling from your Google contacts, in this case. As I recall (it's been 4 years since I had Android), it would only show contacts in the main Contacts group on the phone. I created a new contacts category called Defunct and put the ones I didn't want on my phone in there.

Check out the Account setup screens - there is probably an option to turn off suggested/recent contacts or even pick what contacts group you want synced to your phone.