Thank you for the login details. I’ve logged in and then I realized the image issue. This is how it works, and perhaps I should probably review my video tutorial to make sure I mention this if I haven’t….but with the small featured image option set, you have the choice of what size of thumbnail you want. The one on the live demo site is 260×160 pixels. The one you had on yours was full width and it’s not setup for that one to auto adjust because compared to my other themes, this one has no image container with a width to it, rather it just gets inserted and floated to the left of your intro content. Long story short, create your thumbnail image first to the size you want, upload it for your featured image on posts. I did this for you on the test one and made a thumbnail of 260×173 (the height is relative to the width of your image which I sized it from 1024px to 260px.
As for the “Continued Reading” part…this is done by using the Insert “More Link” button on your post editor. I’m assuming you never done this before so here is a tutorial for you, although this one is based on WordPress.com, it’s still the same method. http://en.support.wordpress.com/splitting-content/more-tag/