I have no skills with mod_rewrite
So, I would make changes in the rattion PHP script. On rotation the filepaths would be /update/potd/site1/1.jpg 2.jpg, etc - for direct linking to the image AND I would deff kill the old PHP script.
I think, the way you made your mod_rewrite, if the Query String is:
type=thumb1&site=site1
The rewrite will fail.