Hey, your examples look good!
I tried it on my localhost test site, where I have WordPress installed in a subfolder but controlling the main folder. The links for the images are correct, but the self, next, and previous are not.
Here's what is in the top of the xml:
<atom:link rel="self" href="http://localhost/zinnia/wp/lazyestfeed.xml" />
<atom:link rel="previous" href="http://localhost/zinnia/wp/lazyestfeed/Surreal" />
<atom:link rel="next" href="http://localhost/zinnia/wp/lazyestfeed/Joy" />
These all have the wp subfolder in them, which just gets me 404 errors. Remove that and it would be good.
Also, it seems to be dependent on the context somehow. The xml above came from (mysite)/lazyestfeed.xml but I expected to see the top-level folder that I have in Lazyest Gallery. What I have is one of the subfolders, which is the first alphbetically. Is that because there are no images in the top level? (your readme would be more helpful if you mentioned how to specify the different folders)