I am having the same issue, and maybe some more.
Brand new 3.5.1 install, created a new site, then installed NS Cloner. There is nothing in my blog.dir folder, and when a site is cloned still nothing gets created here.
Now when I clone the images in the media library are broken. The new folder exists, but the images are not copied.
The new thing I noticed is that the cloned site still has the images embedded in the HTML from the original site in the generated pages.