Hey guys, I was facing the same "Error producing security image" error. I tried hard to figure out what could be the problem
I, first installed GD library. Checked if its working or not using phpinfo.php file. It was ok.
Still I didn't see the security code image rather just crappy error message with black ground.

Well, after installing GD library successfully I tried to check out settings in admin panel and I could see that in Settings --> Advanced Settings there was one option see more named " Use GD library for image processing" I checked the box, saved settings and refreshed join form. Voila, it started showing me security images...

Woooohoooo I was bugged off spending time for this. But now its running fine.

Thanks a lot.

- Mittal Patel
<a href="http://www.MittalPatel.co.in"> http://www.MittalPatel.co.in </a>