First, thank you very much for the generous donation! Very appreciated!
Unfortunately I don't have the answers you want for these questions.
The Image Gallery does not allow you to browse the server for image files, it only lets you browse your local machine and upload files.
The Image Gallery and the Folder Gallery are 2 different features. The Image Gallery does not work by pointing it at a folder on the server but it has the Silverlight Slideshow.
The Folder Gallery is a different image gallery feature, you can point it to a folder or tree of folders beneath /Data/Sites/[SiteID]/FolderGalleries and it will automatically generate thumbnails and web size images from the full size images. It was really designed for you to organize images into folder trees on your local machine and then ftp the folder up to the server already organized with your full size images and it will generate thumbnails and web size images an even thumbnails for folder navigation within the tree it points to. Later I added support for uploading files from the web page but originally it did not have this. It does not have the Silverlight Slideshow that the other Image Gallery has. You can see an example of the folder gallery on my site, it points to a top level folder beneath /Data/Sites/[SiteID]/FolderGalleries and this top folder has 3 sub folders showing how the gallery can be organized by folders. So each folder gets a thumbnail that is an amalgamation of the images in the folder.