Right, I think the problemm for me is due to the fact I told the system to force GD2. Once I removed the check from that the files uploaded and the thumbnails are created. However the problem is that GD(1?) does not seem to make the thumbnails in correct colour, neither does it automatically resize the images is they are over the maximum width and height.

not sure if this is an issue with myalbum or a problem with the GD2 installation