I think they're great, and it's not much different from progressive image loading that's been around for decades. Images going from blurry to sharp was a big thing back in the 1990's over dial-up AOL and MSN.

> I'd much rather see engineers spending more time making the thumbnails load faster

Generally it's a client-side bandwidth/latency issue, not something on the server. Think particularly on mobile and congested wi-fi, or just local bandwidth saturation.

> The blurry thumbnails have 2 issues 1) trick person into thinking they're loaded

I've never found myself thinking that -- a blurry-gradient image seems to be generally understood as "loading". Which goes all the way back to the 90's.

> 2) have a meaning that content is blocked from viewing

In that case there's almost always a message on top ("you must subscribe"), or at least a "locked" icon or something.

These blurry images are designed for use in photos that accompany an article, grids of product images, etc. I don't think there's generally any confusion as to what's going on, except "the photo hasn't loaded yet", which it hasn't. I find they work great.