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I just checked the xoopsgallery module, and it doesn't look it supports GD libraries. GD is server side and is standard with most linux/apache instalations, so it's not something you can download and point to like netpbm.
If you install xcGallery, it has native support for GD if your host is configured for it and will show up in the list of options for packages to use. It supporst GD Ver 1.x, and GD Ver 2.x
There are no user definable paths to set for this, just check the option to enable it and it work automagically
Sorry about my earlier suggestion, I just assumed that module had GD support.