I created a dynamic album by searching for a tag and then saving the result. The URL for the album is of the form "index.php?album=tag-name.alb" and it displays fine. Images within the album, however, have URLs of form "index.php?album=tag-name&image=image.jpeg" with the ".alb" missing from the album name and therefore give 404.

I apologize if this has been asked before because it seems a very base-level problem but I promise I did search for an answer before asking. Thanks.

zenphoto 1.4.5.8, zpskeleton theme, on Dreamhost if that matters

Actually image links do point to the real locations the images are. Images are not "in" a dynamic album as it is not a "real" file sytem based standard album. The context if in a dynamic album (="saved search") or not is set internally.

Please try a standard theme. If it doesn't happen there it might be a theme bug (sadly your theme has been abandoned by its developer meanwhile).

Nope, happens with Default and Effervesence+ themes as well. Whatever the theme, I can insert the ".alb" in the URL manually and the image is found.

I just tried and can reproduce this. I have opened a ticket:
https://github.com/zenphoto/zenphoto/issues/616