
$kfm_userfiles_output = abs2rel(str_replace($_SERVER['DOCUMENT_ROOT'],"",$kfm_userfiles_address),dirname(__FILE__)). "/";
and now get this in the image path:
../../../../../../../../FileUploads/Images/gift_giving.jpg
The image does display now - but is this a correct or proper fix?

That definitely is not the right fix. It works because it is trying to go above the highest directory allowed and ends up being effectively "/FileUploads/Images/gift_giving.jpg"