A Generic error occurred in GDI+ in Bitmap.Save method

When either a Bitmap object or an Image object is constructed from a file, the file remains locked for the lifetime of the object. As a result, you cannot change an image and save it back to the same file where it originated. http://support.microsoft.com/?id=814675

A generic error occurred in GDI+, JPEG Image to MemoryStream

Image.Save(..) throws a GDI+ exception because the memory stream is closed

http://alperguc.blogspot.in/2008/11/c-generic-error-occurred-in-gdi.html

EDIT:
just writing from memory...

save to an 'intermediary' memory stream, that should work

e.g. try this one - replace

    Bitmap newBitmap = new Bitmap(thumbBMP);
    thumbBMP.Dispose();
    thumbBMP = null;
    newBitmap.Save("~/image/thumbs/" + "t" + objPropBannerImage.ImageId, ImageFormat.Jpeg);

with something like:

string outputFileName = "...";
using (MemoryStream memory = new MemoryStream())
{
    using (FileStream fs = new FileStream(outputFileName, FileMode.Create, FileAccess.ReadWrite))
    {
        thumbBMP.Save(memory, ImageFormat.Jpeg);
        byte[] bytes = memory.ToArray();
        fs.Write(bytes, 0, bytes.Length);
    }
}

This error message is displayed if the path you pass to Bitmap.Save() is invalid (folder doesn't exist etc).

    // Once finished with the bitmap objects, we deallocate them.
    originalBMP.Dispose();

    bannerBMP.Dispose();
    oGraphics.Dispose();

This is a programming style that you'll regret sooner or later. Sooner is knocking on the door, you forgot one. You are not disposing newBitmap. Which keeps a lock on the file until the garbage collector runs. If it doesn't run then the second time you try to save to the same file you'll get the klaboom. GDI+ exceptions are too miserable to give a good diagnostic so serious head-scratching ensues. Beyond the thousands of googlable posts that mention this mistake.

Always favor using the using statement. Which never forgets to dispose an object, even if the code throws an exception.

using (var newBitmap = new Bitmap(thumbBMP)) {
    newBitmap.Save("~/image/thumbs/" + "t" + objPropBannerImage.ImageId, ImageFormat.Jpeg);
}

Albeit that it is very unclear why you even create a new bitmap, saving thumbBMP should already be good enough. Anyhoo, give the rest of your disposable objects the same using love.