YES! Having the gray bg in the gallery view often leads to missing the correct file. The thumbnails make scanning so much easier. Please let the thumbnails be viewable on password protected files.
Yes current implementation is not good. The password protect icon should be in the corner as an indication the file is password protected to not interfere with the thumbnail.
This should be fixed asap. A bit amazed the Figma team didn’t think about this as the default.