GOT IT FIXED!
The issue is that TimThumb.php (thumb.php) views the WPMU virtual directories as a physical location. This means TimThumb.php will strip the domain name from a file if the file is from the same site that it is hosted on. For example, it sees "http://sample.com/sub/files/image.jpg" as "/sub/files/image.jpg", so when it tried to grab the image it can not find it die to the fact that the folder structure "/sub/files/image.jpg" does not exist on the server.
So, all you have to do is force TimThumb.php to keep the full domain name in the images.
HERE IS HOW
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Open TimThumb.php (thumb.php) and edit the following code.
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Starting at Line 554
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function checkExternal ($src) {
$allowedSites = array(
'flickr.com',
'picasa.com',
'blogger.com',
'wordpress.com',
'img.youtube.com',
'AddYourSiteURLHere.com', **Add your domain name to this list**
);
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Then go to line 645 and comment out the code so it looks like this.
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function cleanSource($src) {
// $host = str_replace('www.', '', $_SERVER['HTTP_HOST']);
// $regex = "/^((ht|f)tp(s|):\/\/)(www\.|)" . $host . "/i";
// $src = preg_replace ($regex, '', $src);
// $src = strip_tags ($src);
$src = checkExternal ($src);
// remove slash from start of string
if (strpos($src, '/') === 0) {
$src = substr ($src, -(strlen($src) - 1));
}
// don't allow users the ability to use '../'
// in order to gain access to files below document root
$src = preg_replace("/\.\.+\//", "", $src);
// get path to image on file system
$src = get_document_root($src) . '/' . $src;
return $src;
}
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That should be it. I hope this helps some one else.
To the Awake Crew. Thanks a ton for all the help and I hope this info helps you in the future. From what I am seeing online this issue with TimThumb is very common with the new integrated version of WPMU found in WordPress 3.x. You may want to consider making the change a permanent fix in your themes.