I am having a hard time with figuring out where the code is coming from on the Newspager to point out which "thumbnail" to display.
I have Dominion and so far I just changed the actual demo image file... but I am creating a second Newspager that I would like to have thumbnails in the Newspager and the article with a full size image. I have copied and pasted the exact image file link and then tried pointing it to a different image folder (for this new section) and even created a thumb image in the same folder and I don't see how to get this thumbnail image to show in Newspager?
Im with you on figuring out the code that is creating these thumbnails. I can tell you however that the thumbnails are automatically created from the large image by the module. You can overwrite the thumbnail with your own image, I have done that several times.
I would recommend copying the module and the articles and then modifying them from there to match your new section/category... that way you don't loose any valuable code that could be part of the mystery equation.
Not sure if that helps, but to say the least, I feel your pain and have come up with bandaids to get around it... Hopefully this will help.