So moving to a Virtual Private Server from Dreamhost has fixed the problem I was having with Gallery 3 failing to resize images because of ImageMagick being killed. I can now resize all the photo's in an album and it works as expected.

However I did find something that may effect performance. Imagemagick has a fork named GraphicsMagick and it is purportedly faster and less resource hungry than it's ancestor.

So if you are running into the Gallery 3 super large thumbnail and resize issue and your shared hosting provider supports GraphicsMagick, then you may want to try enabling it. GraphicsMagick may have a low enough overhead that it won't get killed because of using too much CPU / Memory.

This is a guess, but try it and see you may be able to avoid paying for a VPS.