Figured it out! Our live server was missing the GD Image Library. For some reason it was not included in the package we used to instance our server.
I found the tip about the GD lib in this thread from the WordPress support forum. It was three years old, but pointed to the missing library.
We never noticed the fact that the thumbnail size selectors were greyed out because we thought we were taking care of sizing using the Theme Function file.
Thanks @MathSmith and @Wyck
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