Err... you need to use FTP or something to create the folders each time you create a category...
Like if the error message is:
Warning: Unable to create './../data/media/22/1.1.jpg': No such file or directory
Then you need to go to your media directory and create the folder 22 and chmod it... Then you try uploading again and it should work...
The problem for me is I have to keep doing it... Say I create folder 22 and I manage to upload photos into that particular directory.. The next time I create another category for my gallery, I'll get the messge
Warning: Unable to create './../data/media/23/1.1.jpg': No such file or directory
So I just go FTP and create folder 23 and it'll work...
That doesn't really solve the problem.. but at least it's working... Hope that helps...