The errors you are getting are do to the processor. Your telling me permissions are fine.
I have 1.8 installed right here and works fine
http://www.omegatron.net/classifieds...php?product=24
Okay well VPS works why not follow our directions to install ImageMagick in a non-root install and try switching to ImageMagick to see if that helps you.
http://www.photopost.com/magicknoroot-php.html