I have been battling with this myself. Make sure that your TV for the images are set to use your Media Source "Media". Also, check the error log and see what path it is trying to use for the image. It is displaying the original image because it cannot find the path somehow. At one point I had to use this snippet call for phpthumbsof:
[[!phpthumbof? &input=`../[[+filename]]` &options=`&w=640&h=480&zc=0&aoe=0&far=0`]]
. for the input, I needed to add a ../ infront of the filename. This worked for a while, until I installed Babel and starting using different contexts. Then it stopped working this way. I solve that by create a base_url setting for each context and leaving it empty.
It seems that there are some major problems with the concept of these media sources and how to implement them in a site. I hope that this will be taken care of.
The problem I am having now, is that I can't correctly insert images using TinyMCE