General Support: Upload: Error 500 - Internal server error

One line problem statement:
Photos sized over 3Mb get Error 500 when uploading in Plogger.

Further details:
Fresh install of v3 beta. New SQLv5 database. Upload pics into uploads folder, then go to admin screen. Go to import tab, select Boy Pages, two photos (both sized over 3Mb) that were taken with my new Canon Rebel XTi SLR camera show Error 500s instead of thumbs. All other photos (sized around 1Mb) taken with old camera show thumbnails. So I click "Import" at bottom, and get a blank screen with another Error 500. If I go to the directory I am able to see the "large" photo. (http://www.jeunegirl.com/plogger/images/boy_pages/boy_pages/jan0108_090.jpg) If I go into my gallery from the website, I see nothing in the collection or album even though the server directory shows 10 photos. Plogger config should allow large file sizes. My php.ini has upload_max_filesize=4M,
post_max_size=4M, max_input_time=4M, memory_limit=4M. Is this a SQL issue? Plogger issue? Please help.

I'm using 1&1 as my host - I know there have been posts here about their memory usage but even when I upload individual 3MB+ files I get the 500 errors. I was poking around on 1&1's admin site and I found the CGI Output Monitor, so I ran it against the plog-import.php function, and this is what I got:

Result:
- 126 CGI returned nonzero status
/usr/bin/nice: /kunden/homepages/9/d97087721/htdocs/jeunegirl/plogger/admin/plog-import.php: Permission denied
STDOUT OK STDERR OK

I am going to contact 1&1 for help. /usr/bin/nice has something to do with scheduling priority. Not sure how it factors in.