I'm on a VPS environment so I have root access, btw.
So take a look at these issues: http://www.sonikastudios.com/wp-content/themes/sonikas/scripts/timthumb.php?src=/wp-content/uploads/tedleescreenshot1.jpg&w=100&h=100&zc=1&q=100
That returns a 404 error.
However when I move timthumb.php to the root of the site, it works.
I verified file/folder permissions, it's not the issue. Also, another PHP generated image that i use for Captcha, is doing the same thing...
So essentially it boils down to no .php files running from within folders. However this is not an issue otherwise because PHP scripts I have under /admin/ on other sites work fine.
So... what could cause this? Most forum articles I read lean towards a mod_security problem, but I don't even know where to start, as I'm not an apache expert.