Ok - had time to go away and figure it out some more.
I now understand how the networking logon settings are designed to work - needless to say, they weren't what I was expecting... I took the Automatically logon option to mean logon using a password-free anonymous account - which would be undesirable with any NAS - hence why I had the option unset. This was a result of just getting the box and just wanting to get it working as soon as possible. I guess that if it were called something along the lines of 'automatically logon with saved credientials', or some such, I woudn't have been confused.
Twonky is the bottleneck on the WD MyBookWorld NAS - it cannot supply photo information fast enough for the thumbnails to be displayed in a reasonable time. Attaching as a shared network drive does allow the thumbnails to appear in a reasonable time.
So I wonder how it would be possible to reduce the bottleneck further - is it a limitation of the WDTVLive, the network, or the Media Source. (The MyBookWorld is not a fast NAS by any means.)
As most of the images are straight off the camera, I'd expect them to have EXIF pictures.
Locally attached USB drives (mine's a bit old now) are quick as well - but it's definitely creating some thumbnails on the USB drive... it doesn't seem to do this on the shared NAS folder though. And it doesn't appear to show thumbnails on folders on the NAS, but does on the USB... how confusing.
Any further thoughts on speed and thumbnails would be much appreciated.