Hi mad max,
actually i too notice the ("Failed to create a temp dir...") problem.
however one time i smush.it, i get that. 10 minutes later, it smushed without issues.
After smushing a dozen or 2 pictures, i get the error again. I had to wait another 20 minutes or so before i could smush again.
Bulk smushing the new feature works, but after a dozen or so pictures, i also get that temp error message.
Like Alex the author said, it is most likely to do with the yahoo smush.it service causing these errors, not the plugin.
I'm not sure changing the code to your recommendation would be much of a difference. What exactly does it do ?
By the way my website is http://mognet.no-ip.info
I'll send you a message :}