Unable to set permissions in G3

I'm unable to edit permissions in G3. I get the error message you see on the attached. I contacted my hosting support and got the reply below. Is this a bug or do I need to make some changes in the admin or in folder permissions on the host? Thanks.

From the host support:
Greetings

Mod_rewrite is set to on as standard in the apache configuraiton and is functioning.

I have set your .htaccess file for this directory to allow the FileInfo and Options directives,

This however has failed to reduce your websites error message.

As all required options are configured your going to need to contact your softwares developer in order to request further information as to what configuration changes can be made in order to resolve this issue.

The servers php and apache information is below.

root@toledo [/home/reseller/public_html/gallery]# php -v
PHP 5.2.17 (cli) (built: Jul 18 2011 09:03:04)
Copyright (c) 1997-2010 The PHP Group
Zend Engine v2.2.0, Copyright (c) 1998-2010 Zend Technologies
with the ionCube PHP Loader v4.0.9, Copyright (c) 2002-2011, by ionCube Ltd., and
with Zend Optimizer v3.3.9, Copyright (c) 1998-2009, by Zend Technologies
with Suhosin v0.9.32.1, Copyright (c) 2007-2010, by SektionEins GmbH

Configure Command => './configure' '--enable-bcmath' '--enable-calendar' '--enable-dbase' '--enable-exif' '--enable-force-cgi-redirect' '--enable-ftp' '--enable-gd-native-ttf' '--enable-libxml' '--enable-magic-quotes' '--enable-mbstring' '--enable-pdo=shared' '--enable-soap' '--enable-sockets' '--enable-ucd-snmp-hack' '--enable-wddx' '--enable-zend-multibyte' '--enable-zip' '--prefix=/usr/local' '--with-bz2' '--with-curl=/opt/curlssl/' '--with-curlwrappers' '--with-freetype-dir=/usr' '--with-gd' '--with-gettext' '--with-imap=/opt/php_with_imap_client/' '--with-imap-ssl=/usr' '--with-jpeg-dir=/usr' '--with-kerberos' '--with-libexpat-dir=/usr' '--with-libxml-dir=/opt/xml2' '--with-libxml-dir=/opt/xml2/' '--with-mcrypt=/opt/libmcrypt/' '--with-mhash=/opt/mhash/' '--with-mime-magic' '--with-ming=/opt/ming/' '--with-mm=/opt/mm/' '--with-mysql=/usr' '--with-mysql-sock=/var/lib/mysql/mysql.sock' '--with-mysqli=/usr/bin/mysql_config' '--with-openssl=/usr' '--with-openssl-dir=/usr' '--with-pcre-regex=/opt/pcre' '--with-pdo-mysql=shared' '--with-pdo-sqlite=shared' '--with-pgsql=/usr' '--with-png-dir=/usr' '--with-pspell' '--with-snmp' '--with-sqlite=shared' '--with-tidy=/opt/tidy/' '--with-ttf' '--with-xmlrpc' '--with-xpm-dir=/usr' '--with-xsl=/opt/xslt/' '--with-zlib' '--with-zlib-dir=/usr' '--with-litespeed'

Loaded Modules:
core_module (static)
authn_file_module (static)
authn_default_module (static)
authz_host_module (static)
authz_groupfile_module (static)
authz_user_module (static)
authz_default_module (static)
auth_basic_module (static)
include_module (static)
filter_module (static)
deflate_module (static)
log_config_module (static)
logio_module (static)
env_module (static)
expires_module (static)
headers_module (static)
unique_id_module (static)
setenvif_module (static)
version_module (static)
proxy_module (static)
proxy_connect_module (static)
proxy_ftp_module (static)
proxy_http_module (static)
proxy_scgi_module (static)
proxy_ajp_module (static)
proxy_balancer_module (static)
ssl_module (static)
mpm_prefork_module (static)
http_module (static)
mime_module (static)
dav_module (static)
status_module (static)
autoindex_module (static)
asis_module (static)
info_module (static)
suexec_module (static)
cgi_module (static)
dav_fs_module (static)
negotiation_module (static)
dir_module (static)
actions_module (static)
speling_module (static)
userdir_module (static)
alias_module (static)
rewrite_module (static)
so_module (static)
auth_passthrough_module (shared)
bwlimited_module (shared)
frontpage_module (shared)
suphp_module (shared)
security2_module (shared)
Syntax OK

I'm in the same situation.
Being on Bluehost, I applied these steps:
http://codex.gallery2.org/Gallery3:Host_specific_issues#BlueHost.2FHostMonster
The error message no longer shows up in the permissions dialog,
but the permissions don't work as they should.

Did you got it to work eventually?
-Max