Digikam cannot show Thumbnails when in Albums. However, thumbnails are successfully shown under Labels, Dates, Timeline etc. 
So, I started playing with the Albums options. First I attempted to create a new sub album (sub folder), by right clicking -> New...
I didn't change the default settings, so the new album should be called 'New Album'.
The album creation failed, with error message:

Failed to create directory 'file:///New Album'

So, it seems something's wrong with the root/parent album path it retrieves from the OS.