I used XML-Sitemaps.com and just generated a images.xml file and Google like it. Below is some of the xml. For some reason Google just does not like image names that xml generateds by Sitemap XML. I think the probelm might also related to the plugin Images Handler4. Images Handler4 converts the master image into different sizes and places them inside the BMZ_Cache folder. The file names in the BMZ_Cache look like this.

322d8b022b177e2080cf0e54d78dcae1.image.750x500.jpg

The above filename is what Sitemap XML uses and the image is not indexed by Google.

XML-Sitemaps generates the XML using the master image name in the Images folder. Examples below

<image:image>
<image:loc>http://tennesseetraditionalflies.com/images/categories/Caddis_Nymph.jpg</image:loc>
<image:caption>Caddis</image:caption>
</image:image>
<image:image>
<image:loc>http://tennesseetraditionalflies.com/images/categories/Crustaceans.jpg</image:loc>
<image:caption>Crustaceans</image:caption>
</image:image>
<image:image>
<image:loc>http://tennesseetraditionalflies.com/images/categories/Eggs_Worms.jpg</image:loc>
<image:caption>Eggs and Worms</image:caption>
</image:image>

If Sitemap XML had an option to gather images from a specific folder such as /Images/* and ignore the BMZ_Cache files. It would probably generate an acceptable xml for images.