memory Limit exhausted by filefield

I have a site that has been running for a number of months.

I tried to upload a new product and got the following error when trying to upload an image:
An HTTP error 0 occurred.
/filefield/ahah/product/field_image_cache/3

If I try to save the page, error:
Fatal error: Allowed memory size of 268435456 bytes exhausted (tried to allocate 25500 bytes) in /home/wwwsunwa/public_html/modules/imageapi/imageapi_gd.module on line 59

I initially had the memory limit in php set to 128M and got an error saying memory size was about 136M. I increased the limit on the server side to 256M (site status shows the change) and now get an error of 268M

I did place the site offline, ran update, and did cleared the cache.

Any suggestions?