The "File Preview" setting determines, if Boxcryptor for Android opens the file within the app using our internal viewer or if it uses the default third-party app. It does not have anything to do with thumbnails.
Due to the client side encryption, we cannot show thumbnails of images without the need to download the original image first. This is obviously not possible on mobile devices where you e.g. have a slow internet connection.
However, we have various ideas for solutions which we are eager to try as soon as possible (but we don't have a timeline for it).