- It doesn't appear that the files have been merged, when i look at the source of this page
http://www.venturasvisions.com.au/editmenow/index.php?main_page=index&cPath=34
your listings have no trace of image handler code in them
<td class="productListing-data" align="">
<a href="http://www.venturasvisions.com.au/editmenow/index.php?main_page=product_info&cPath=34&products_id=86">
<img src="images/website jewellery 015.JPG" alt="test 2" title=" test 2 " width="93" height="137" class="listingProductImage" />
</a>
</td>
If Image Handler is correctly installed it should look more like this
<td class="productListing-data" align="center">
<a href="http://scrapbookoutletnz.co.nz/shop/index.php?main_page=product_info&cPath=1558_1559&products_id=14598">
<img src="bmz_cache/8/8f352ebd901f284395d72a99768be77a.image.120x120.jpg" alt="AG Darcey - Black Quatrefoil Flocked Paper" title=" AG Darcey - Black Quatrefoil Flocked Paper " width="120" height="120" class="listingProductImage" style="position:relative" onmouseover="showtrail('bmz_cache/4/46e81b05dde2c20e6c55e0cc7fac0e44.image.200x200.jpg','AG Darcey - Black Quatrefoil Flocked Paper',120,120,200,200,this,0,0,120,120);" onmouseout="hidetrail();" />
</a>
</td>
as for the default template having a gap appear on imagehover thats happened before to people, normally it was caused by people not adding the image handler css file to their current template