Hi,
Just to see if I understand the problem. You are using a subdomain so I'm assuming your main site is
www.joomlasite.com
and your test site is
www.joomlasite.com/testsite
If this is the case then you are describing a bug which I logged
www.mobilejoomla.com/forum/topic.html?id=382
MJ resizes the image and puts it in the correct folder but when it comes to display it, MJ looks in the image folders of the main site and doesn't find it.
A workaround is to manually copy the resize folders and contents to the main site. This is assuming you are still in the "what does it look like" stage of testing and don't have lots of pictures.
Don't be put off MJ because of this. It's a fantastic product and I'm sure this glitch will be sorted out.