I found what seems to be the problem, but I don't know how to solve it. It appears that simple gallery plugin that K2 is using have versions for both 1.12 and 1.2 mootools. So when mootools plugin is enabled it loads this version:
    <script type="text/javascript" src="/plugins/content/jw_simpleImageGallery/includes/slimbox-1.71a/js/slimbox.js"></script>

    and when it's disabled it loads this version

    <script type="text/javascript" src="/plugins/content/jw_simpleImageGallery/includes/slimbox-1.58/js/slimbox.js"></script>

    But it detects just is plugin enable or disabled. Normal joomla mootools upgrade plugin doesn't have option to choose different versions for backend and frontend so this is enough for them.

    For this to work, you must use 1.2 on both frontend and backend.

    But then there is that "half image" problem. Inspecting CSS I found out that div that holds image has some inline css:
    <div id="lbCenter" style="width: 250px; margin-left: -125px; left: 609px; height: 470px; top: 217px; " class="">

    But this is for image that is 450px wide, so JS math is wrong. I don't know how to fix it, but that's bug in simple gallery module for mootools 1.2. Maybe you can just upgrade that plugin and it will be fixed. Check their documentation.

The problem is in the jupgrade and transfer of items to the new table
The items are not getting updated to the new settings, not necessarly a k2 problem. If you create new k2 categories and items they should work ok.
You have found the fix in the forums that will update all the k2 items at once.
If you dont have many, and open them up change the author and save them that will work as well.