I am experiencing this problem I can't get to work. I run a clean WP on my OSX server locally to test things and afterwards I upload the stuff to my blog.
When uploading bigger images (above a few 100's mb) it does not create a thumb on my 'live' server. I checked both php.ini files and override some of the defaults in order to give the server time to process the upload.
Off track: I experience the same problems while using gallery. So it is obvious a server thing. But I can't seem to figure this one out.
Is there somebody who had the same problems and got it working??
I run out of searches and tried a whole lot of stuff (obviously not everything: then the problem wouldn't have existed anymore ;-) )...