I figured it out.
Turns out the segmented controller's frame is of 44pts height, and the background images was 75ptsx75pts. Since i've set the image's top and bottom inset to 18pts, the OS was taking the image's top and bottom 18pts and resizing it, ignoring the rest. Here is the fun part, since the image has a gradient, the rest of the image is ignored and it the control is colored like that.
In order to use images with vertical gradients you must use a base PNG with the exact same height as your control (http://useyourloaf.com/blog/2012/07/05/customizing-appearance-with-resizable-images.html)
This is what I did, resize the image to 44x44pts and change the insets to UIEdgeInsetsMake(0, 10, 0, 10)
denoting that the image can't have to be resized vertically