Look at
http://wwrk.maa.org/moodle/mod/forum/discuss.php?d=522#p7125
The file webwork2/lib/WeBWorK/Constants.pm is where you might have to adjust constants for dvipng depending on the version you are using on your server. (dvipng -v will give you the version number. I'm using 1.6 at the moment.)
Hope this helps -- report back if it doesn't.
--Mike
WeBWorK Main Forum
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