1. If you are reffering to 'archive within archive' (eg. cbz/zip within cbr/rar), then no, only normal zip/rar is supported. Archives need to be fully extracted to be read reliably (theoretically it's possible to read nested archives, but under specific conditions and not-so-simple implementation).
2.
File used as the thumbnail is the first found image file, that is, the first image added to the archive. That depends on the archiver (WinZip,WinRar, etc.) and the way it sorts files. This is by design, because I wanted the ability to set the particular image for thumbnail (eg. Quicktime lets you set thumbnail aka 'poster' for mov files).

The simple way to set the particular image as thumbnail is to make sure it is the first one added to archive, that is, by right clicking it when making zip/rar.
Loading first found image also saves time, because scanning the whole archive can be lengthy, and would require a bit different code, but I don't have the time now (I do have a daily job), maybe in some future versions. Also, images larger than 32mb are skipped to avoid exhaustive memory consumption (everything is done in-memory). I did some research: 1920x1200 24bpp bitmap takes 6.5mb, 3264x2448 (8 Megapixel photo) 23mb, 4096x2304 27mb, but other image formats (jpg,png) are much smaller: 3464x3464 bmp (12 megapixel, 100% quality, 24bppp) takes around 34mb, but same jpg takes 2.5mb, so I estimated that 32mb limit is sufficient in all normal cases.
You can now choose how thumbnails are displayed (alphabetically / archive order) using settings utility.