I looked and looked for an answer to my problem on this forum but no one seems to have had this problem.

I did try Juggledads solution "Getting Configure Excerpts to work in all cases" but I don't think it applies to my solution. I didn't work.

Basically when I turn the "Only Excerpts" option on for the "Posts or excerpts on HOME page?" I get this error when I view the page:

Fatal error: Call to undefined function: the_post_thumbnail() in /homepages/22/d106426728/htdocs/blog/wp-content/themes/atahualpa/functions/bfa_post_parts.php on line 124

I am using Atahualpa 3.4.5 on Wordpress 2.8.6

oh, you must have gotten one of the first downloads there is a bug

Atahualpa 3.4.5 released
Update: 3.4.5 wasn’t compatible with WP 2.8 and older (no check whether the new post thumbnails function is available). The first 4 downloads had this issue.
This is fixed in the download below - which is now version 3.4.5.1.
With Post Thumbnails, a new feature of WordPress 2.9, plus a fix for a drop down menu issue in IE 8.

go to http://wordpress.bytesforall.com/?p=82 and get 3.4.5.1

That was it. Thank you sir