Thumbnail doesn't display in wysiwyg textarea (just inline tag)

It took me a while to get this to work at all, so there's a chance I haven't got everything set up the way it should. I have jquery_update 2.0-alpha1. I have jQuery UI 1.7.4, and have made a copy of themes/base/ui.all.css called jquery-ui.css to get the display working ok. I'm using TinyMCE 3.3.8 with wysiwyg. I have a basic image node type that is absolutely standard except for an additional imagefield. I created a couple of image nodes, and they displayed beautifully in the browser. When I click on OK it inserts as an inline tag (eg [[nid:4]]). If I disable and re-enable rich-text with the wysiwyg button, the thumbnail appears perfectly.

Any ideas?

Thanks for working on such an important module!