500 server error while importing multiple images

I've noticed a weird issue while using image_import with one of my Drupal sites which is using the 1AND1 hosting with PHP v5.2.1 while using GD toolkit, here is the problem:
Lets say I have 10 1024x768 JPG images which are ~75Kb/each some are landscape and others are portrait. I FTP them to the import folder on the server and then ran the image_import to import all of them in to my gallery. After few seconds I get the 500 error and if I go back to the image_import I notice that half of the images have been processed and the other half were left in the import folder. I've noticed that image_import can only process 5 images at once and if I select more images I get the 500 error. I've noticed also that if I change the image module settings and add another image size say original(1024) on top of the default thumbnail(100) and preview(640) the number of images that image_import can process without returning the 500 error comes down to 2. After further investigation I've noticed the same issue while attempting to regenerate thumbnails for multiple images from the Content management > Content section. I've tried this with 5.x-1.0 and the latest dev version of image and get the same results. I'm under impression that this may be a memory issue where the image module is not releasing memory after generating thumbnails for each image in a collection of images, but I'm not sure. Thanks for your help.