Could be one of the paths are incorrect in the ubb control panel.
You can check a couple of things.
Check the properties of the red x to see what url it is looking at.
Check the actual directory and see if the file is actually there.
Browse to the actual file and see if it appears.
Check the folder file permissions,they should be 777 for gallery and I believe the default directory under gallery.

Also the url to your site may be helpful.

FYI, It is not finished as of yet. But I started a wiki on this subject at:
http://www.ubbwiki.com/wiki/view/81/gallery.html
Maybe your issue will help me improve the article.

Blue Man Group
There is no such thing as stupid questions. Just stupid answers