Also as you can see highlight doesn’t seem to work as intended(highlight should change with selection). I use plasma 6.6.3 cachyOS
This is happening to me as well, Nothing i did would really get it to regenerate the thumbnails. Then after deciding to just live with it until its fixed, I wanted a new background image so i downloaded something, right clicked it from dolphin and chose set as wallpaper | desktop. and it set it on all 3 monitors and fixed the activity i was on.
So in summary, right click desktop and change wallpaper there didnt work ever for me, but right click file from download folder and change there did.