that’s because of using an image typed input for the form submission:
<form ... >
...
<input type="image" src="image/btn.png" ... />
</form>
replace that image typed input with a submit typed input while you’re using CSS to set it’s background:
...
<input type="submit" value=" " class="searchSubmit" ... />
...
CSS:
.searchSubmit{
background: url(image/btn.png) center no-repeat;
border: 0;
...
}
let’s place the XML configuration file in theme root.
Also I recommend you to use the 0.2beta release which is downloadable from http://www.seoadsensethemes.com/wp-post-thumbnail-0-2-beta-1/