With mercury 1.1, Taxonomy image using imagecache works, imagecache in other situations repeats url?

After instal of Ok, I hardly sleep and often fight to stay awake when typing, please forgive me. I have the following problem.

I have installed mercury 1.1 and set my system path on ./sites/default/files using lucid.

Imagecache works when applied to taxonomy image , however normal images are not working due to the url being repeated like this http://thecenterofthenet.com/sites/default/files/imagecache/avatar3/site... (not working)

http://thecenterofthenet.com/sites/default/files/imagecache/ttt/category... (taxononomy images - working)

Any ideas would be appreciated. Sleeping for now 40 minutes.