Did you modified your signature.php other then the settings section? if you did, try unmodified version.
Or, you could try test it and make sure that what you've described is correct, create a new category, upload a few images in it, change extension case on one thumbnail, make sure that the thumbnail shows ok when you visit category page. then in your testing signature_test.php replace (this is part of a line)
i.cat_id NOT IN ($not_in_cat)
with:
i.cat_id IN (NNN)
(replace NNN with the category number where you test images are)
Now, turn on debug ($debug = 1;)
see if it shows thumbnails.