No, they are not supposed to be 777 (any of them).

Line 18
Code:
$IMConfig['base_dir'] = '/home/your_username/public_html/images/';
Line 28
Code:
$IMConfig['base_url'] = 'http://www.domain.com/images';
If your cart is not on root, you will need to add the directory accordingly.

If you want, send me details of access and I will take a look to it.