Well what is interesting is you state the ini_set line is applied in pp-inc.php which means php memory should be overridden to 70M for Photopost but it is not. Now if you have total control over your server in your php-ini file on the server for php try changing the memory_limit to 70M and reboot the server make sure it has changed in phpinfo and then try the action that is giving you trouble. If you are having issues with GD2 and have SSH access to the server you may elect to compile Imagemagick and use that since you would not be prone to memory issues using Imagemagick.
PhotoPost PHP Photo Sharing Photo Gallery ImageMagick Installation Guide