Thanks Jon..I manually deleted the files I ftp's into the root, deleted the /cache/ directory I created in under the images directory and reinstalled from / at the folder level after correcting the zip file that previously only showed the files not the directory structure. In short I ftp'd the 3 folders beneath the upload folder ( /images, /include , /sq) into the root directory of the site. I manually patched the skin1/product_thumbnail.tpl. and the images seem to showing up ok now. Thanks much..
I do have one other concern..In the backend .. when I go to modules to activate the mod.. It shows the Dynamic Images module twice. When I tick one of the boxes to activate the module and then "update" both itterations of the module show as ticked. I am sure this is because I messed up the first install. and ran the patch twice. Do you have any Idea how I can get rid of the duplicate listing of the module. (see screen print attached)
http://desertvalleyelectronics.com/Public/dynamicimage.jpg