Get yourself the TimThumb source and put it in the root of your site.
Create a folder in the root of your site named “cache” and set the permissions to 777.
Now open your nivo slider js file. Im using jquery.nivo.slider.pack.js, search for the first nivo-control.
<a rel="'+k+'"><img src="'+f.attr("rel")+'" alt="" /></a>
Now replace that with
<a rel="'+k+'"><img src="timthumb.php?src='+f.attr("src")+'&h=19&w=35" alt="" /></a>
The changes made are the timthumb.php addition to the image src and the attr change to src.
adjust the h= and w= to your liking.
Save the file and your good to go, no need to make thumbnails or anything else to the img tag in your nivo slider.
If you would like installation help just contact me via skype: blueicestudios