esmi I would have to disagree, I have the same issue when generating thumbnails. This has only started since the last update of nextgen gallery. Previously generate thumbnails had no issue when generating a thumbnail for the exact same image.
As a test I have tried loading the same image with the previous version of nextgen gallery, no error was thrown when generating a thumbnail, this site is also configured to send an email when PHP memory is exceeded and none was sent with the previous issue.
There is definitely an issue with this version of nextgen gallery.