We are getting an error when we use the GD2 library upon image upload the error states:

Error: resizing thumbnail image failed.

We also tried to use ImageMagick but it makes clear/translucent backgroun images a light green tint.

Our setup is the following:

Joomla 1.04
CB RC2

In CB configuration we have

ImageMagick Auto dectected ImageMagick 5.3.8
NetPBM Auto dectected Netpbm 9.24
GD1 library Not installed
GD2 library Auto dectected bundled (2.0.23 compatible)

Any suggestions would be greatly appreciated.

Have you tried different file types? I'm no expert but I have read that certain libraries do not work well with all file types. Try 2 or 3 different file types and see of they all create the same error. If not then it is a file type issue.

We have tried with gif, png, jpg.

No clue?