add-thumbnail-to-latest-posts-block.php

add_action('init',
    function() {
        unregister_block_type('core/latest-posts');
        register_block_type(
            'core/latest-posts',
            array(
                'attributes'      => array(
                    'categories'      => array(
                        'type' => 'string',
                    ),
                    'className'       => array(
                        'type' => 'string',
                    ),
                    'postsToShow'     => array(
                        'type'    => 'number',
                        'default' => 5,
                    ),
                    'displayPostDate' => array(
                        'type'    => 'boolean',
                        'default' => false,
                    ),
                    'postLayout'      => array(
                        'type'    => 'string',
                        'default' => 'list',
                    ),
                    'columns'         => array(
                        'type'    => 'number',
                        'default' => 3,
                    ),
                    'align'           => array(
                        'type' => 'string',
                    ),
                    'order'           => array(
                        'type'    => 'string',
                        'default' => 'desc',
                    ),
                    'orderBy'         => array(
                        'type'    => 'string',
                        'default' => 'date',
                    ),
                ),
                'render_callback' => 'my_render_block_core_latest_posts',
            )
        );
    },
    11
);

function my_render_block_core_latest_posts($attributes) {
    $recent_posts = wp_get_recent_posts(
        array(
            'numberposts' => $attributes['postsToShow'],
            'post_status' => 'publish',
            'order'       => $attributes['order'],
            'orderby'     => $attributes['orderBy'],
            'category'    => $attributes['categories'],
        )
    );

    $list_items_markup = '';

    foreach ( $recent_posts as $post ) {
        $post_id = $post['ID'];

        $title = get_the_title( $post_id );
        if ( ! $title ) {
            $title = __( '(Untitled)', 'gutenberg' );
        }

        $image = get_the_post_thumbnail( $post_id );
        $list_items_markup .= sprintf(
            '<li><a href="%1$s">%2$s %3$s</a>',
            esc_url( get_permalink( $post_id ) ),
            $image,
            esc_html( $title )
        );

        if ( isset( $attributes['displayPostDate'] ) && $attributes['displayPostDate'] ) {
            $list_items_markup .= sprintf(
                '<time datetime="%1$s" class="wp-block-latest-posts__post-date">%2$s</time>',
                esc_attr( get_the_date( 'c', $post_id ) ),
                esc_html( get_the_date( '', $post_id ) )
            );
        }

        $list_items_markup .= "</li>\n";
    }

    $class = 'wp-block-latest-posts';
    if ( isset( $attributes['align'] ) ) {
        $class .= ' align' . $attributes['align'];
    }

    if ( isset( $attributes['postLayout'] ) && 'grid' === $attributes['postLayout'] ) {
        $class .= ' is-grid';
    }

    if ( isset( $attributes['columns'] ) && 'grid' === $attributes['postLayout'] ) {
        $class .= ' columns-' . $attributes['columns'];
    }

    if ( isset( $attributes['className'] ) ) {
        $class .= ' ' . $attributes['className'];
    }

    $block_content = sprintf(
        '<ul class="%1$s">%2$s</ul>',
        esc_attr( $class ),
        $list_items_markup
    );

    return $block_content;
}

Currently (pre WP 5.0) there seems not to be a filter to filter the output of the latest posts block. This is probably something which will come soon. Meanwhile, this is a workaround to help with the following request: https://twitter.com/deadfishli/status/1050308721597972480

Its basically a copy paste of the original block declaration, you can find here: https://github.com/WordPress/gutenberg/blob/master/packages/block-library/src/latest-posts/index.php

Keep an eye one what changes to this block though.

Disclaimer: I don't know if you would consider this "best practice", but it should work :)