Now this is weird.
Not seeing your message above until today (Aug. 28), I decided to turn thumbnail creation off, and it worked well enough that way. Since creation of thumbnails on the fly was a little slow, however, I reduced the size of the thumbnails from a width of 140 to 100. Things were working very smoothly at that point.
Today, after seeing your message, I turned on PHP debug and tried regenerating thumbnails to see the debug code. Guess what? No problems. I also tried uploading a photo and that also worked.
Since everything is working again, I guess I don't need your help, but this was kind of strange...
Anyway, thanks for a great module and keep up the good work.