If you get this setting thumbnail error (switching feature off) using the Win7Shell (Windows taskbar integration) plugin, here is a solution you can try:

First install the latest (final) version of the plugin (v. 2.0); then open the preferences of Winamp and go to the Plug-ins section > General Purpose. Then at the right panel select and configure the Win7Shell plug-in; in the “Text” tab clear (uncheck) if it is checked, the option to “Reduce thumbnail redrawing frequency”; at the “Background” tab check “Transparent” and, in the same tab, uncheck “Show image as icon…”; at the “Miscellaneous” tab uncheck the “Add player control buttons” and all the other options “Remove Winamp…”, “Show playback…” and “Disable aero” should all be clear.

This solution won’t work always. It seems that the problem is serious enough and needs a new version of the plugin to be fixed.

Until this happens, you can use an autoclicker such as ClickOff to automatically press the OK button whenever Winamp pops up an alert about errors in setting the taskbar thumbnail.