Okay. I figured this out on my own.

If there's no space in the /tmp on your tablet, knots 2 fails to save/load the screen shots and defaults to that leprous orange, default folder icon.

You can check the space available in that folder with this command:
ls -lah /tmp

For me, it turned out that the OMWeather applet was taking a big dump in that temp folder so this is what I typed in Xterm to get back the normal icons for knots.
echo -n "" > /tmp/omw.log

All thanks should be directed towards me on this. *lol*