I didn't mean to imply that photo thumbnails are working. Jpegs display as very small and at the center of the screen, one at a time in a slide show. It's my interpretation that I'm seeing thumbnails in place of a proper display.
To me, it seems like the HR20 displaying photos at 640x480 and downscaling if the photos are at a higher resolution. It looks like if the photos are less than 640x480, it displays them on a 640x480 canvas, keeping the original size. I can see where this may be a problem on a smaller screen with small photos, but it doesn't bother me much on my 61" 1080p.
If you do want the photos enlarged, they can probably be transcoded using image magick.
Jin says that mediatomb supports photo thumbnails per the uPnP spec, but he says the HR20 does not follow the spec and thus thumbnails are not displayed. TVersity probably has a hack in place to display the thumbnails.