Hi bpat..
I have no plans for the system to grow..basically, the max amount of thumbnails and fullsized images is 10 each per subfolder (2 subfolders).
So to answer your posed questions:
Will my data be static or will I be adding/removing items as I go on?
I be adding/replacing items as I go, as once a subfolder fills up with 10 gallery images, and a new image is ready, I will replace the 'weakest quality' image with the newest addition (in otherwords, there is no plans to expand past 10 thumbnail images and 10 fullsized images per subfolder).
Is it feasible for me to implement a caching scheme using a flat-file system or is a database easier?
It can go either way for me (depending on the ultimate path I take).
How much load can my server take before it quits?
Good question. However, I do not anticipate any high volume traffic at all. The site is built for occasional viewing.
For something this small, I'd say keep with the file system, until it grows. If you start to see it grow, then you need to cut your losses and move to a database type setup.
Again, there is no plans for growth. However, I would still be interested in building a test page that utilizes a small and simple database if its more beneficial to do so.