Do you get the memory error after creating a gallery or when uploading an image?
The PHP memory error isn't related to your disk space, it's something different. The line of code generating the error is when it's trying to read in one of your images. Can you try using another image (maybe one you've uploaded successfully before) and see if that works?
I would also try saving the image as optimzed from photoshop to see if that makes a difference. I haven't really seen this issue before, but it could be something with the image itself that PHP is erroring on.
-justin
