Hi
I just installed this plugin (it is great!) and I wanted the same thing as you. As I just installed it I do not know if there is a better way with creating a new template, but what I did (and it works) was to edit the html code under the template tab.
Where it says:
<div style=”float:left; margin:7px”> %post_author_avatar% </div>
replace the %post_author_avatar% with %post_thumbnail% .
That gave me the post thumbnail instead of the author avatar, but the thumbnail was not clickable (link to post). So I did one more tweak and the final code that replaces the original <div style=”float:left; margin:7px”> %post_author_avatar% </div> is:
<div style="float:left; margin:7px;"> <a title="Permanent Link to %post_title%" rel="bookmark" href="%post_permalink%">%post_thumbnail%</a> </div>
That works for me. Now I am trying to figure out how to change the size of the thumbnail.