Smith bodyguard Maurice Brighthaupt said he and another person had discussed a scheme to sell the pictures for $1 million shortly after the infant's birth.
Brighthaupt said he was told People magazine would pay for the photos, and the money would be split with him if he got the pictures.
Brighthaupt testified last week about drug use by Smith.
The prosecutor objected to Monday's testimony, saying the defense was trying to implant the impression that everyone around Smith was scheming to get money.
The judge said it was his impression that everyone was scheming, and the defense had the right to attack the credibility of the witness.
The exchange began the second week of testimony in the trial of Smith's lawyer-boyfriend Howard K. Stern and her doctors Khristine Eroshevich and Sandeep Kapoor. They have pleaded not guilty to conspiring to provide Smith excessive amounts of opiates and sedatives. They have not been charged with her death.
Brighthaupt, under questioning, acknowledged that the first time he agreed to talk to authorities about Smith's 2007 overdose death in Florida was after Stern went on CNN and accused the bodyguard of stealing pictures.
Brighthaupt also acknowledged that the first time he claimed Stern had administered prescription medication to Smith was after that public accusation against him.
The bodyguard did not say if the $1 million deal ever came to fruition. But he said he did collect large fees from TV shows, including "Access Hollywood" and "Entertainment Tonight," for giving interviews and providing photographs.