> What is the preference for thumbnail compression?
JPG.
LZH is mainly still there for legacy reasons. JPG is much more compact. LZH is a zip-like lossless compression format.
For best JPG compression, use multiples of 8 for your thumbnail dimensions (e.g. 120x120).
If you need color-accurate thumbnails, use a JPG quality setting of 94 or higher (but these will take significantly more space than lower settings).