Fun stuff.

At the top level of the album, if you don't want your theme image to also appear as a single image (below the folders), select that image in the main jAlbum editing window, click the Exclude icon (the one that looks like a "do not enter" sign), then make the album again. jAlbum/Turtle will still use that image as the theme image, but you will have only folder thumbnails at the top level.