I just checked again, and the item I was testing had _MED.gif extension, so i added a new product and IH is working on the new products. So maybe I am ok now. However...
On one of the demo products did not have an extension _MED and image still not resizing, maybe something with the demo product images? (they are already small?
My products:
http://www.electricmotorshop.com.au/...roducts_id=180
Demo product with no _MED extension:
http://www.electricmotorshop.com.au/...&products_id=1
It's a not an issue for me as long as my own products are working
In trying each of the template, I re-installed the image handler and the files were changed in each template.
IH resize images was not working (where IH resizes and changes image to the bmz_cache)