Problem Solved - just required more digging. Thanks!
Atahualpa V. 3.4.9
WP V. 3.0.1
1. I have added the <img> in the "don't strip these tags" in the ATO "Configure Excerpts"
2. I have checked "crop thumbnails" in the ATO "Post Thumbnails"
I see that I need to add a line to the "Post Thumbnail CSS." It says that it will "Style the Post Thumbnail."
Unfortunately I'm not sure where to find the bodycopy block that I need to modify.
Is there a "Post Thumbnail" css file somewhere that gets modified?
Or do I look for a different file?
Here is what I'm told to do...
It is placed inside the 'bodycopy' of a post, right before the first paragraph of the excerpt:
<img POST THUMBNAIL HERE class='wp-post-image' />
<p>Post Excerpt starts here...</p>
Unfortunately I'm not sure where to put it.