Not sure why this is... but when I setup another gallery lastnight on a server where I have anotherone already running, I ran into where setup kept saying the path was no good. Tried it over and over without sucess.
Checked the other gallery and the path is there. Check with a shell account and the path AND web rights to the path are fine. In fact another gallery on the same box works with that same path.
Solution
Left off the path (to use GD by default) and when I got to the next screen, reset ImageMagick and used the path that the other site was using and it works just fine.
I suspect that something is preventing the setup from working where the gallery itself does not have the issue.
Not sure what though.
This was a new installation using current version 1.3.4