Basically when you hover over a smaller image you will see it enlarged where the big photo is. They would also like the small images to scroll left and right like a slider. I am sure there is a jQuery plugin for something like this but I do not really know where to start.
Eventually each block of images will be referring to a particular portfolio piece and will link to an individual page showing the portfolio images in full.
That’s tricky with the layout you have now. Personally, I wouldn’t use arrows for the smaller images. Maybe something like when you click on the third image, it automatically slides to the next set. When it gets to the last one and it is clicked, it slides all the way back to the first set.
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If they’re absolutely sold on this, the best way to do it I think would be to make 3 separate sliders with thumbnail carousel navigation. NivoSlider does this pretty well out of the box, and is fairly easy to style / edit.