[Plugin: WP Smush.it] Smush.it error: Failed to create a temp dir

Since the change to use Yahoo’s hosted version of Smush.it I keep getting this error when I try to manually smush a picture:
Smush.it error: Failed to create a temp dir

Also, when uploading a picture via the Media Uploader I’m just getting the return path of the image and have to explicity click ‘Save Changes’ to see the image, instead of being directly redirected to the uploaded image like it normally works.

I’m on PHP 5.2, WordPress 2.8.2 and allow_url_fopen is enabled. Am I missing something? Any advice?

PS Congratulations with your son’s birth! ??