Well, I'm running the nightly build now and I don't see any memory errors, but I did notice something pretty interesting about the jpg files themselves...
When opened in a text editor, they contain two newline characters followed by <!-- zenphoto version 1.1.3 Theme: default (full-image.php) -->
Oh oh oh! I may know what is wrong! I just responded to a previous thread which I started, but the switches in full-image.php are case insensitive, so if your images end with anything but .jpg or .jpeg you won't match any cases and you will get that string in your image.
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Also, you can try the nightly build. Last nights build added an option to allow you to control the quality level of the image.
When opened in a text editor, they contain two newline characters followed by <!-- zenphoto version 1.1.3 Theme: default (full-image.php) -->
Update: I do see the line in the files, but it has not caused problems with the images I have saved/viewed.
I'm not using the watermarking or quality adjusting options, so linking straight to the originals would be fine by me, if that's an easy workaround.