It's really weird, this problem. I am not getting any kind of an error on the queue page. No warnings or anything. In the photo upload section, where there should be a thumbnail for you to enter the title and desc, there is just a link to the picture (the text of the link is the file name with no extension) at http://www.therybaks.com/wp-content/imgdir/qdir/%picname%.jpg. Then, once you enter the info and save, it brings you to the queue, and instead of a thumbnail, there is a link to the picture (this time the link is the title that was given in the batch info screen) at the same spot in qdir.
So, I am not seeing any problems, just links rather than thumbnails.
Does this still sound like a memory issue? If so, see my above comment about adding the memeory line.