I have the same problem, also WP 2.7
At first it worked fine, since last week it doesn’t work anymore.
I did change some things in the theme but nowhere else…
When I upload a new picture it sais on the screen that it is crunching, but no smaller images are generated, I checked via ftp.
Also my CHmod is 777, and the bigger images do upload fine, so that is not the problem. And there is enough disk space left.
Does anybody else have this problem and – maybe – have a solution?
Right now I’m using Photoshop scripts to downsize and rename my images and then I upload the smaller sizes via FTP – which is a pain…
Esther