I don’t use this widget, but I did find an faq page for it that asks a similar question. The response was “The widget shows text links when most of the recommended posts in the widget do not have an image.” Here’s a link to the faq page: http://www.linkwithin.com/faq.
Do the suggested posts that show up as links have images in them? It sounds like if the majority of them do not have an image in them, then the widget will display the text links instead. Hope this helps.