Yes, it is denying permmission to rename ( see below ) but not to read or write.
In IIS systems, the read, write, AND Modify permissions must be set on the server.
I have set the Modify permission and everything works great, thank you.
2: rename(C:\Inetpub\wwwroot\html\GameZone\Forums\gallery\1_12_07_07_9_46_49.jpg_thumb,C:\Inetpub\wwwroot\html\GameZone\Forums\gallery\thumb_1_12_07_07_9_46_49.jpg) [<a href='function.rename'>function.rename</a>]: Permission denied
File: C:\Inetpub\wwwroot\html\GameZone\Forums\Sources\Gallery.php
Line: 1065