What do people prefer when their images are used in website templates? A flat fee or a per-download fee for the template?

Depends on the template, so I suppose the answer is really "per-download". This have more balance for the template provider and the artist. If a site really takes of than my $50.00 flat fee may seem small. However, if like most sites, it doesn't get very far, the $50 someone would have to spend to buy each of 10,000 images would be a little much to bear.