@wholycow: There's a "reset to default behavior" button somewhere in the KUAL extensions, IIRC, that'll also make sure you don't have a broken config.
Like GoSharks said, you don't need to touch neither the FW version, nor the JB.
If you want to start fresh, just uninstall the hack,
remove the linkss folder manually, then reinstall the hack. And then
stop, check that it works before doing anything else. If it does, and only starts to go crazy once you put your custom images, then, yep, it's definitely your images

.
As a ref., something I *know* generates proper PNG files is
ImageMagick, since this is what the cover mode uses (cf.
#837).
@brianinmaine: Nope. Most of those are JPG, which, nope, won't work on FW 5.x

.