Not a problem.

Firstly, from Magento 1.9 onwards, they removed the “Category Thumbnail” feature from category panels.

You can bring those back using this swift guide (from http://www.magikcommerce.com/blog/magento-1-9-1-0-missing-thumbnail-image-category/)

Go into phpmyadmin and run the following query (make sure to back up your db first).

Note: If this gives an error about duplicate key, you’ve probably already created an attribute with that value. Increase the ID of 140 to something greater (I used 240).

INSERT INTO `eav_attribute` (`attribute_id`, `entity_type_id`, `attribute_code`, 
`attribute_model`, `backend_model`, `backend_type`, `backend_table`, `frontend_model`, 
`frontend_input`, `frontend_label`, `frontend_class`, `source_model`, `is_required`, 
`is_user_defined`, `default_value`, `is_unique`, `note`) VALUES(140, 3, 'thumbnail', NULL, 
 'catalog/category_attribute_backend_image', 'varchar', NULL, NULL, 'image', 'Thumbnail
 Image', NULL, NULL, 0, 0, NULL, 0, NULL);

Now run these ones (watch the ID!):

INSERT INTO `catalog_eav_attribute` (`attribute_id`, `frontend_input_renderer`, 
`is_global`, `is_visible`, `is_searchable`, `is_filterable`, `is_comparable`, 
`is_visible_on_front`, `is_html_allowed_on_front`, `is_used_for_price_rules`, 
`is_filterable_in_search`, `used_in_product_listing`, `used_for_sort_by`, 
`is_configurable`, `apply_to`, `is_visible_in_advanced_search`, `position`, 
`is_wysiwyg_enabled`, `is_used_for_promo_rules`) VALUES 
 (140, NULL, 0, 1, 0, 0, 0, 0, 0, 0, 0, 0, 0, 1, NULL, 0, 0, 0, 0);
INSERT INTO `eav_entity_attribute` (`entity_attribute_id`, `entity_type_id`,  
`attribute_set_id`, `attribute_group_id`, `attribute_id`, `sort_order`) 
VALUES (337, 3, 3, 4, 140, 3);

Now, I’ve researched many ways to include thumbnails in the menu, many of them involved hacking the core (NOT recommended). However, a quick fix meant adding the following code worked with a category loop.

<?php if ($image = $_category->getThumbnail()): ?>
	<?php $imageUrl = Mage::getBaseUrl('media').'catalog/category/'.$image; ?>
<?php else: ?>
	<?php $imageUrl = Mage::getBaseUrl('media').'catalog/category/noimage.png'; ?>
<?php endif; ?>	

Again, there will be better ways to do this, but I found this offered a quick fix.