image should only be opened over HTTP if it is external

in taxonomy_image.module, line 243 the URL is always constructed using the file_create_url function, however if the file is on the local files system and fopen HTTP is disabled the module refuses to work. After changing it to file_create_path the module worked as expected.

(same goes for the default image handler on line 260)

Did not look further into how an external image is handled, but i can imagine it saves a lot of hassle if a local file system file is used as a local file instead of a HTTP external file.

Ended up using this :

 $image[$tid]->url = file_create_path($fullpath . $image[$tid]->path);