(I appreciate very much that you take the time answering my question since your thesis seems like a much more urgent task).
Moodle auto recognizes that GD is not installed but actually gd-1.8.4-4 is installed.
I checked phpinfo more carefully and this is what it says about gd:
GD Support enabled
GD Version between 1.3 and 1.6.1
GIF Read Support enabled
GIF Create Support
Maybe the problem is right there since I have a newer version of gd than is supported by php?
Possibly it could be a good idea to uninstall the present gd and downgrade?
BTW: I have RH7.1 and php4.1.1 (hmm - thought I had upgraded php to 4.1.2).
I also tried moodle on RH7.2 on another server which hopefully explains my initial message. Learning by doing you know - good ol' Dewey!
Cheers