I had to switch to GD to fix the problem but I have Imagemagick installed and used it prior to the upgrade. Not sure if it's on my end or not. My other 1.x forums on the same server are using Imagemagick just fine.
So I've added protection to prevent this issue anyway, but the only reason we can see for this potentially happening is if ImageMagick was in use at some point, then it became unavailable and the option was saved (this would give it a blank value). XF1 handle that case as an automatic fallback to GD, so we do that here now too.