Cannot add a new category to my new virtuemart shop?

Hi,
I just did an upgrade from Joomla 1.0 to Joomla 1.5
The virtuemart version is 1.1.0

When I try to load a new category I get this error below?

I have ensured that folder and file is file permission 777

Can someone help me fix this so I can add some new categories?
-----------------------------------------------------------------------------------
Warning: imagejpeg() [function.imagejpeg]: Unable to open '/home/ajtgms/public_html/upgrade/components/com_virtuemart/shop_image/category/resized/Test_4bb2fb9aefedc_130x150.jpg' for writing: Permission denied in /home/ajtgms/public_html/upgrade/administrator/components/com_virtuemart/classes/class.img2thumb.php  on line 299

Warning: getimagesize(/home/ajtgms/public_html/upgrade/components/com_virtuemart/shop_image/category/resized/Test_4bb2fb9aefedc_130x150.jpg) [function.getimagesize]: failed to open stream: No such file or directory in /home/ajtgms/public_html/upgrade/administrator/components/com_virtuemart/classes/class.img2thumb.php on line 363

Warning: imagejpeg() [function.imagejpeg]: Unable to open '/home/ajtgms/public_html/upgrade/components/com_virtuemart/shop_image/category/resized/Test_4bb2fb9b0b6f6_130x150.jpg' for writing: Permission denied in /home/ajtgms/public_html/upgrade/administrator/components/com_virtuemart/classes/class.img2thumb.php on line 299

Warning: copy(/home/ajtgms/public_html/upgrade/components/com_virtuemart/shop_image/category/resized/Test_4bb2fb9aefedc_130x150.jpg) [function.copy]: failed to open stream: No such file or directory in /home/ajtgms/public_html/upgrade/administrator/components/com_virtuemart/classes/imageTools.class.php on line 310
Error: The following image update command failed: move_uploaded_file