As been discussed I was having several different issues with running sGallery on an IIS server. After two days of testing and trying... I fianlly got my thumbnails to create, display, and also eliminated all phpthumb error messages.
Your eyes are fooling you :) '==' and '===' (3 times equal sign) are totally different (at least in PHP) So different that if you don't make it right your script could fall in infinite loop (just a matter of time).
