I removed the "." and tried it again. I double-checked that file permissions were 777 for FileUpload and its subdirectories (confirmed by the server's sysadmin). I changed the configuration.php (line 28) to: $kfm_workdirectory = 'thumbnails'; and renamed the FileUploads subdirectory to thumbnails.
Didn't work. I got the same error:
error: "/data/websites/lunarlion/apache/FileUploads/thumbnails/" is not writable