My application requires that when a snapshot is taken it must store in memory and next time when I restart the phone I must get a thumbnail of that photo in list of photos a
Definitely store the images directly as opposed to in XML. It will take time to read the image from the file system but I wouldn't worry about this taking an excessively long time.
Read through the android docs on Data Storage for more info: http://d.android.com/guide/topics/data/data-storage.html