[Plugin: NextGEN Scroll Gallery] Problems uploading images

Hi,
We got a web company to design a site for us using wordpress last year and it has been working fine until now. We were able to upload images without problem however last week when I tried to upload images, using the same process as always do, I got a message saying there was an error. The image seemed to upload, as I saw the progress bar go up to 100%, but then I got a message saying “A Failure Occurred. Error. Created Image Failed. Check safe mode settings.”
I contacted the web designer but he has been very unhelpful and says it is a hosting issue. I contacted our hosting company and they said all permissions were updated to write to the directories but I still have the error coming up.
I’m worried about updating to the latest version of the program as the hosting package we are on is old and won’t allow the latest version of WordPress to operate. If I was to update it what should I be looking for in the server settings to make sure it doesn’t crash the site?

Many Thanks

http://wordpress.org/extend/plugins/nextgen-scrollgallery/