GD and GD2 works fine. I switch this to ImageMagick and make sure the path is /usr/bin/ (also tried a few others just in case) and all I ever get is “Thumbnail could not be created for the image. Please make sure the thumbnail directory is writable.”
As I said uploads are fine on GD/GD2. Folders are set to 777 just to take that out of the equation. Not sure what might be wrong.
Using 4.0.4 on Linux