You need ffmpeg on your PC, preferably in your path - put the exe in windows\system32 or add its location to your path.
Then open a command prompt, go to the folder containing your vids and do
for %i in (*.avi) do ffmpeg -i %i -f mjpeg -t 0.001 -ss 5 -y %~ni.tbn
That goes through all the avi files in the folder and creates a jpeg (actually with a .tbn extension for XBMC) of the frame 5 seconds in, with the same name as the avi. Then set that folder in XBMC to show in thumbs view and you're away!. Alter the number after '-ss' to change how far in you want the grab taken. Change *.avi to be whatever the extension of your vids is.
Not rocket science, but I found it useful and thought I'd share.