Phin2001. Take a look at these screenshots. In the first one you can see that a OneDrive connected folder can most definitely show thumbnails of photos. In the second one you can see the settings in the OPTIONS>VIEW menu. Make sure the ALWAYS SHOW ICONS, NEVER THUMBNAILS IS OFF BY DEFAULT. And then say APPLY TO FOLDERS> I'm sure this must be your issue.
IF it is not, a question I have for you is "how much RAM do you have in your machine?" It could be that a low memory situation or substandard graphics card could be at fault. But try these first.