Okay first thanks to Chuck for the constant help during the last few weeks. It's all working now.
Notice a few things:
1) jpegtran's path is indeed correct but don't know why, removing it from the global options indeed helped solve the thumbnail rebuild problems
2) I couldn't find jhead in the path specified but it doesn't appear to be affecting any of the images... somehow it can check and extract exif information..... strange
3) Tried editing the integration settings and was given the following. The settings didn't get changed.
Content visible to verified customers only.
Why would this file be defaulted to be unchangeable. I chmod it to 777 and it worked fine now.