I'm trying to find a way to have an image's star rating show on the thumbnails but i'm not sure where to begin
Can something be edited in the flag_thumbnail plugin or do I need to add something to the gallery.php?
Thanks

Either you create your own version of the flag_thumbnail plugin or you add somehting to the theme used. So get the rating values, create the display you want (or use that of the rating plugin) and edit the theme's html and css to create an overlay.