I was able to correct the problem. I'm not sure if this is the best way of building the string but here is what worked for me.  It seems like this string after its built is stored in a database.  So this fix will not fix existing items you have listed.  It will only affect new listings.

In the ProductEdit.ascx.cs at Line 255 change:
   imagePath = (string)PortalSettings.HostSettings["HostURL"] + PortalSettings.HomeDirectory;
      to
   imagePath = "http://" + (string)PortalSettings.PortalAlias.HTTPAlias + PortalSettings.HomeDirectory;


So the Completed Function should look like:

private string GetImageUrl()
{
string imagePath = image1.Url;

// Is this an internal image?
if (image1.UrlType == "F")
{
DropDownList cboFolders = (DropDownList)image1.FindControl("cboFolders");
DropDownList cboFiles = (DropDownList)image1.FindControl("cboFiles");

imagePath = "http://" + (string)PortalSettings.PortalAlias.HTTPAlias + PortalSettings.HomeDirectory;
imagePath += cboFolders.SelectedValue + cboFiles.SelectedItem.Text;
}

return imagePath;
}

Sorry ... I figured it out, and found another issue.

I found that after referencing the image file on my own domain, and hand editing the URL to fix the domain name, it still didn't work.  For some reason it didn't seem to like the fact that I was using a .PNG file.  I uploaded a .GIF version of the image, and now it's working.

Thanks for the great work ... this looks like a great start!

P.S. One last request for images ... it would be nice to be able to lauch a pop-up of the full-size image, or have the option to do so.