1) I think you misunderstood. My problem wasn't with the fact that you were trying to use a JPEG formatted image. It was that in your example the file extension you used was .jpeg; when in fact it normally would be .jpg. You can use 4 letter extensions, it just is not common and I wanted you to verify that in fact you were using the 4 letter extension.

2) Both of your examples have nothing to do with the point you were attempting to dispute. My point was that the theme.ini file is not part of the theme config itself. It is an extra file read by the LiteStep Theme Installer upon switching to a theme. Therefore, this file is not read while doing a !Recycle. This file is only read by the installer so you must use it to select your theme; whether it be the popup menu or by using the application directly.