We want the caption to only show on the larger image, not the thumbnail. But when I leave the thumbnail caption blank in the labels file via:
image.jpg||caption for big image

We get a black line at the bottom of the thumbnail. Can you fix this? Is there a workaround?

See it towards bottom of this page:
inbizct.com/Content-SC-Region/index.html

You can actually add some CSS inside either the plugin's CSS file or at your template's with which you will hide the caption box of the thumbnail and therefore with the fully filled labels.txt file you can see the label of the image to the larger photo.

li.sig-block a.sig-link span.sig-pseudo-caption { display:none;}

THANK YOU!!!  That fixes it perfectly :)