I’ve managed to use an ‘external url as featured image’ plugin to cure my problem thanks. So in the end I didn’t need the plugin.
But I will answer your questions anyway for future reference should anyone else who use a theme from the same designer.
Yes, the normal featured images were working.
No, the default image wasn’t working anywhere, not in homepages/categories etc.
Yes, there was a few plugins installed which were also from the theme developers, including ones showing popular posts, recent posts etc – which showed thumbnails. I am now thinking the plugin was perhaps clashing with one of those.
I have checked the themes files and it does use the ‘the_post_thumbnail’ function.
Thanks for your support. Hope those answers help should anyone else use the theme.