Are you using bundled or non-bundled GD library? In case of the latter, what version of GD library are you using?

I assume the bundled library. Although the unbundled library did exist on this machine before I compiled the new PHP. And it was version 2.0.1.

Are the dimentions of the 'source' image greater, less then or equal to the size of the 'destination' image?

They are equal. Basically, this code takes a template image, and places some dynamic text on top of it. It's used to make custom header graphics for a site, without the need to create new images in Photoshop, etc.

I've tried to duplicate the problem you've described using PHP 4.3.0 using bundled GD and PHP 4.2.3 using standard GD. Both produce absolutely identical images with the TTF (arial) font that I've used.
What version of freetype library are you using and if possible can you put the 'good' & 'bad' image online for comparison reasons.

Not sure about which libttf version. I know I have freetype-2.0.9 installed on the machine with the link below. Not sure if that helps.

http://tpol.ideastar.com/test.php

The code that produces bad results:
<?php
$text = "Jagged Text";

Header("Content-type: image/png");

$source_file = "bluebox.jpg";
$target_id = ImageCreateFromJPEG ($source_file);

$fontsize = 36;
$xpos = 20;
$ypos = 40;

$font_color = ImageColorAllocate ($target_id, 255, 255, 255);
$font = "/usr/local/www/archer/FRAMDCN.TTF";

ImageTTFText ($target_id, $fontsize, 0, $xpos, $ypos, $font_color, $font, $text);

ImageJpeg($target_id); 
ImageDestroy($target_id);

?>

The code that produces good results (trial and error figured this one out):
<?
$text = "Clear Text";

header("Content-type: image/png");

$source_file = "bluebox.jpg";
$source_size = getimagesize($source_file);
$source_w = $source_size[0];
$source_h = $source_size[1];
$source_id = ImageCreateFromJPEG($source_file);

$target_id = ImageCreate ($source_w, $source_h);

ImageCopyResampled($target_id, $source_id, 0, 0, 0, 0, $source_w, $source_h, $source_w, $source_h);

$fontsize = 36;
$xpos = 20;
$ypos = 40;

$font_color = ImageColorAllocate ($target_id, 255, 255, 255);
$font = "/usr/local/www/archer/FRAMDCN.TTF";

ImageTTFText ($target_id, $fontsize, 0, $xpos, $ypos, $font_color, $font, $text); 

ImagePNG ($target_id); 
ImageDestroy ($target_id);

?>

Please try using this CVS snapshot:

  http://snaps.php.net/php4-STABLE-latest.tar.gz
 
For Windows:
 
  http://snaps.php.net/win32/php4-win32-STABLE-latest.zip

Using the latest snapshot with identical font, source image and test script I've created an image that is not jagged.
For reference I am including a URL to the image created using 4.3.1-dev + bundled GD library.
http://bb.prohost.org/img.jpg

It would appear that I might have been using the unbundled version of gd. I went back to my test machine and removed all references to gd in /usr/local and recomipiled. That seemed to do the trick. I did use the latest build as you suggested. I am going to go back and try recompiling my production machine using the same settings but using the release version of 4.3.0.

Thanks for your help.

I recompiled php 4.3.0 again. My mistake was in the configure script. I put --with-gd="/usr/local" rather than just --with-gd by itself. This time, it used the bundled version of gd and the type came out okay.