I've done some work on the memory problem--results will be in tonight's build. Please give it a try and see if it helps.
I did learn one thing, though, in the process. The value you place in the INI memory_limit (either in the zenphoto code or the PHI.ini file.) can at best be considered an advisement. For instance, I can set memory_limit to 768M, to 512M, or to 96M and PHP will parrot back this value to me. But the server never seems to be allocating more than around 64M no matter what the memory_limit was set to. (I guess it could be set smaller than 64M, but I did not try that.)
So, take the memory_limit value with a grain of salt. Maybe you will get that much memory or maybe you will not. In the end, if you are getting allocation errors you will have to make smaller images to start with.