First you will need to upgrade to version 0.7, Then you can add the following code to your theme's functions.php file:
function mytheme_post_thumbnail_fallback( $html, $post_id, $post_thumbnail_id, $size, $attr ) {
if ( ! empty( $html ) ) {
return $html;
}
$categories = (array) apply_filters( 'taxonomy-images-get-the-terms', array(), array() );
if ( empty( $categories ) ) {
return $html;
}
$image = '';
if ( isset( $categories[0]->image_id ) ) {
$image = wp_get_attachment_image( $categories[0]->image_id, $size, false, $attr );
}
if ( ! empty( $image ) ) {
return $image;
}
return $html;
}
add_filter( 'post_thumbnail_html', 'mytheme_post_thumbnail_fallback', 10, 5 );
This will hook into the get_the_post_thumbnail() function. If there is not post thumbnail set, it will use the "Taxonomy Image" from the category associated with the post. In the event that the post is in more than one category, this function will only return the first category's image. I believe that categories will be sorted in alphabetical order.
You can then add the following code inside the loop to display images:
<?php
$featured_image = get_the_post_thumbnail();
if ( ! empty( $featured_image ) ) {
print $featured_image;
}
?>