OK, so I found the problem
{if $config.Appearance.show_thumbnails eq "Y"}<img{if $id ne ''} id="{$id}"{/if} src="imager.php/product_thumb.jpg?width={$image_x}&image={$tmb n_url}" alt="{$product|escape}"{if $show_border eq "Y"} class="ProductBorder"{/if} />{/if}
This line had a / before imager.php so read src="/imager.php/product_thumb.jpg, I removed the leading / and all is working fine now.
Great mod, will really help me as I have 1000s of products.