im using DNN 4.3.4 and gallery module 03.01.12 and i have the same error

Well, somehow I managed to get the source code compiling correctly and was able to interject some code to find out what is going on here.  The good news is that I identified what the problem is (At least for me), the bad news is that it is unlikely to help anyone unless they want to pick up the code change.... maybe Chris or Tam will pick it up and do a build for us.....

Anyway, the root cause of this error (for me, your milage may differ) is that my web hosting company has my site on a share somewhere.  When the gallery tries to initialize the metadataxml, the file fails to create because a common routine for concatenating filenames mucks the UNC name.

So we start with something like
\\sites.nfs\sites\95\65\234225\21575\mysite\dnn\Portals\0\Gallery\408
the routine appends a filename and mangles it to
\sites.nfs\sites\95\65\234225\21575\mysite\dnn\Portals\0\Gallery\408\metadata.xml
Which is in turn interpreted by XML.Read as
c:\sites.nfs\sites\95\65\234225\21575\mysite\dnn\Portals\0\Gallery\408\metadata.xml
which does not actually exist.

Code change for gallery is  (for 3.0.12)  Utilities.vb  about line 216
Method is BuildPath

Change
            output.Replace(Delimiter & Delimiter, Delimiter)
to
            ' Skip the first 2 characters so we dont mangle UNC Paths
            output.Replace(Delimiter & Delimiter, Delimiter, 2, output.Length - 2)

Hopefully this will be helpful to some, but I am sure not all

-dw