Upon a google search it is possible to round corners with GD but the results aren't the greatest; they're a bit jaggy; but that's a subjective call on my part: http://www.assemblysys.com/dataServices/php_roundedCorners.php
If you must do this; i recommend using the timthumb script as a starting point:
Timthumb project: http://timthumb.googlecode.com http://timthumb.googlecode.com/svn/trunk/timthumb.php
Stackoverflow also has a post about this: https://stackoverflow.com/questions/609109/rounded-corners-on-images-using-php
