The fact that you have to "upgrade" the Avatars in Last Post add-on (and by this I assume you mean upgrade from 1.0.4a to 1.0.4a) to get this working again concerns me. There is no install script to run and no options to override, so this should do very little other than rebuild your cache. I wonder whether you have some other problem with your cache caused by another add-on or a bug in XF.
When you install Thread Thumbnails, does the main board page (i.e.,
http://www.the8thlegion.com/board/) and all the other forum lists still work as before? Thread Thumbnails should not affect this at all so it must be something else causing this if installing Thread Thumbnails causes Avatars in Last Post to fail.
Also, can you check what options you have set? If you are seeing question marks instead of avatars on threads, this could be because that is the default option if there are no images or attachments in the last post.