Post Thumbnail Issue

I have suddenly started having problems with my Post featured image. I have only noticed this problem last night but this had all been working fine a few weeks ago.

When I select the featured image that I want to use, it selects the full image, rather than the thumbnail, so when I call the thumbnail into a square image I get the full size image squashed.

here is the site I am currently working on: http://www.aghagallongaa.com/new

You can see that the latest posts widget in the sidebar is using the correct thumbnail, but the latest posts on the homepage is getting these squashed images.

all help is greatly appreciated.
thanks,

Liam