I mostly agree with your DM.From Mirror Image (3.5 PH, p. 254): "An attacker must be able to see the images to be fooled. If you are invisible or the attacker shuts his or her eyes, the spell has no effect."
Also: "The figments mimic your actions, pretending to cast spells when you cast a spell, drink potions when you drink a potion, levitate when you levitate, and so on."
And: "Figments seem to react normally to area spells (such as looking like they are burned or dead after being hit by a fireball)."
Finally: "You can move into and through a mirror image. When you and the mirror image separate, observers can't use vision or hearing to tell which one is you and which one is the image."
So... Mirror Image + Invisibility is a waste of the Mirror Image spell in the first place, UNLESS someone uses a spell to counter the invisibility portion.
After that, Glitterdust clings to the target normally. However, the figments "react normally to area spells" and appear to be coated in glitterdust as well.
Likewise, with Displacement (3.5 PH, p. 223): "The subject of this spell appears to be about 2 feet away from its true location."
So, the glitterdusted mage and his/her images appear to be about 2 feet from where they should be -- glitterdust and all.
Glitterdust itself (3.5 PH, p. 236) specifically says it makes invisible creatures visible, and imposes a -40 penalty on Hide checks. It does not mention negating any other visual distortion effects.
ncG1vNJzZmivp6x7prrWqKmlnF6kv6h706GpnpmUqHyouMitq56qlKrAtXnVZqpmoZ6rtrS1waKjoqypYrqqvtGoqWahnZa0pnnDoqqppJGYsq6xza1lamlibH5yew%3D%3D