My friend is wrong.
We successfully compiled PHP 4.1.1 with GD support. A couple of things that I learned (if this helps anyone out):
When setting your ./configure flags you might want to put the directory paths for libpng and the jpeg library. I didn't before and that accounted for some of the errors I was getting (it couldn't find them on it's own).
Also - I had attempted to install GD a couple times while I was messing with this (thinking that it was a problem with GD and not PHP). I ended up with multiple copies of gd.h - I deleted all of them except the one in /usr/local/include. After that, it compiled fine.