This means you can not use jhead jpegtran or imagemagick. You can clear out the jpegtran jhead boxes if they are filled in and set your image processor to GD2 and you should be able to upload and have images sized right. Those Options are in Admin => Global Options.
Then you can ask your host if they will lift those restrictions on your setup otherwise you need to use GD2. From my experience with hosts who set things like this your left to use GD2.
In your php info what functions are labeled as disabled? You might need to ask your host where they disabled things in php or apache. They might be able to help you.
Never seen an issue like that where do you get this? Trying to understand where that is displayed as I do not see any language like that within our product please post a url and login.