My impression, so far, was that whether the creation of thumbnails works or not, depends completely on how much memory is available. When I run it on the original pictures that is around 10 MB which in my case is not available. Disabling other plugins frees up memory and I think it much more likely that this makes it work for some, as opposed to incompatibilities with other (then deactivated) plugins.
However, the amount of required memory depends on the size of the pictures. So when I resize them to 1024×768 (using Irfanview) before upload (and FTP is the fastest approach here for me), it seems to work ok.
