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Perhaps in this case we have a regression, in PS 1.6 it was showing all thumbnails, but also the combinations were working. And there was a "show all thumbnails" button to reset them.
To make the same functionality in PS 1.7 i think it is required a deeper rebuild of the whole part, with controlers. The template is not enough.
Perhaps a theme or module could rebuild the whole product image part, but i don't know if any exist, the core "parts" are often let as they are, they move them around but not changing much, because it is easier for developers, and better for compatibility.
Edit History
Perhaps in this case we have a regression, in PS 1.6 it was showing all thumbnails, but also the combinations were working. And there was a "show all thumbnails" button to reset them.
To make the same functionality in PS 1.7 i think it is required a deeper rebuild of the whole part, with controlers. The templates is not enough.
Perhaps a theme or module could rebuild the whole product image part, but i don't know if any exist, the core "parts" are often let as they are, they move them around but never changing a lot, because it is easier for developers, and better for compatibility.