My developer looked at this locally--the screenshots you showed are of the Random Listing widget displaying, which has BOTH featured and normal listings in it. Your configuration shot is for the featured ads widget, which is not the same. The Featured Listings widget will only show the featured listings (downgrading will not actually display the listings in the featured widget).
The random listings widget doesn't show images right now--that's something we're going to change. Featured listings will, but only when you have featured listings (which your random widget didn't tell us).