There are two separate settings, imageAbsoluteFilePath and thumbnailVirtualFilePath.
ImageAbsoluteFilePath is where the originals are stored, thumbnailVirtualFilePath is where the thumbnails are stored.
I think what differs between your sites is that the (virtual) path referenced by the thumbnailVirtualFilePath is a IIS virtual directory (pointing to a location next to imageAbsoluteFilePath) in one environment but not in the other.
In a Community 3.1.4 site the Thumbnails related to the Image Gallery are suddenly placed in the web root instead of next to the originals.
On the developer machine ImageAbsoluteFilePath is set to say c:\communityfiles\ImageGallery\Original and thumbnails end up in c:\communityfiles\ImageGallery\Thumbnails. But on the server the thumbnails end up under the webroot in /Netstar/StarCommunity/Modules/ImageGallery/Thumbnails, which is the ThumbnailVirtualFilePath in both cases. How come this differs?