I also ran into the problem when I was forced to update WP a week ago.
It is definitely a memory problem. Period. With the standard 40MByte php Memory Space and about 13 MByte Space being used by WP itself (no widgets and plugins active/installed at all) you are not able to upload a picture which increases above 640×480.
That makes nextgen definitely unuseable for all those WP users who have an account by the average hosting provider such as 1und1 and subsidiaries, which don’t increase the space unless you pay them $$.
Sad, because 640×480 is no longer state of the art in the photo and picture world. Sad because nextgens capabilities to integrate as widgets in the sidebar so easily is really an advantage compared to other gallery solutions. Specially for those who have really little time to concentrate on beautifying their WP.
In other words, I gave up (yes, even 1.30b1 did not solve the problem)
Peter
