you can’t run code inside quote since php treats it as string, try this:
<?php
$newsposts = new WP_Query('cat=restaurant');
if ( is_front_page()) {
echo '<h3 class="member-review">Latest Restaurants</h3>
<div id="extra">';
if ($newsposts->have_posts()) : while ($newsposts->have_posts()) : $newsposts->the_post();
echo '<div class="reslogo"><img src="'.catch_that_image().'"/></div>';
endwhile, endif;
echo '</div>';
}
?>