No thumbnails nor images copied to files/diaporamas

This module looks very interesting and I am trying to make a front page slideshow. However I only get checkboxes and no thumbnals when trying to select images from taxonomy terms. When I save the diaporama node, I get errors for each image, eg files/diaporamas/520x520_1/366: creation failed

files/diaporamas (and files/diaporamas/520x520_1) exist and are writable (chmodded 777). dewslider.swf is 644. The diaporama_656.xml parameter file is created OK (also 644). Also I have also checked that I have role permissions to create, edit and view Diaporamas.

Many of my images have multiple taxonomy terms, and I wonder if this is causing a problem?

Also I use Drupal's 'private files' method and I can imagine that will cause issues if the SWF needs direct access. This might be fixable by moving files/diaporamas out of the protected files tree and changing the module code, perhaps?

If anyone can suggest where the problem is, thanks in advance...