The new Widget Panel, Simplified but Advanced
The “Custom Categories” and “Custom Menus” widgets have both been simplified in order to display the bare minimum options that are required to make the widget go.
However, for those times when you need more control, the advanced widget options are a click away. Just click the link that reads “Show More Options” in order to toggle the advanced setup options onscreen as seen below:
For your category thumbnail images, If you leave the widget at the default “small” setting, and you have category images that were uploaded prior to installation of version 6.4.1, you will need to re-upload your category images in order to use this setting (to allow the additional smaller size thumbnails to be created). If you set the image size to “medium”, it will use the same images that were used by the category index.