The "2010/10/05/3108/file/picture.jpg" would be gen'ed from the user's entity create date (Elgg v1.7++). So -- if that file matrix is wrong ;-( something broke earlier...

You coud write some basic sql to fetch _users_entity create date - form the matrix, do a if file exists() to check that whether the correct /file/... dir is there and correct, print anolamies out, review... maybe later code to patch the /file/.. dir back to the corrected name -- worth a shot...

I'm more inclined to believe it is a server related issue as it works fine still on the old server still?  With the exact copy of same database and running an exact copy of the same files.  We have repeated the process a number of times.

Never had this problem before. 

Also we have another fairly new instance running on the same server which is working fine ... no file path issues. It's like there is a conflict between the shifted over elgg instance and server ... very odd.

hmmm... you did say ->

010/10/05/3108/file/picture.jpg should be
010/10/06/3108/file/picture.jpg.

Now.. A user entity has got but the one create date, so the directory 05/ is wrong --

Grab the user entity GUID to format FileStore name viz->

        $time_created = date('Y/m/d', $user->time_created);
        return "$time_created/$user->guid/";

Confirm that  your data root has got the correct sub-dir name for the MIA images.. that will start you off maybe better. Another problem cause could be chmod / chown / owner:group on the (sub)directories -- tho you need to check this thru linux shell command level. *And - your error log should have something to say about why the image file access was denied.. maybe sumthang like ".. access denied for file "xxxxxxx.." to user UUUU for file owned by user OOOO blah blah nauseumz...