Yes, I did see that the gallery worked in DNN 4.3.5 with friendly url's enabled and was surprised. I wonder if the module was a patched version and would be interested to know the version # of the file DotNetNuke.Modules.Gallery.dll in the /bin folder of the site. You should be able to obtain that by looking at its properties in Windows usual file explorer.
Regarding the progress on Gallery 4.03.00, the beta that was posted on CodePlex does have two minor issues that may not affect you:
#1 An unhandled exception was thrown when both a parent and child portal (running DNN 4.9.x only, not DNN 5.x) each containing the gallery module are opened in the same browser instance by the host user and an attempt is made to upload files first to one and then the other portal's gallery.
#2 Filenames beginning with an underscore may be uploaded without error but will not display in the gallery.
I have fixed both of these issues, prepared new packages and plan to submit them to the DNN release tracker testing process tomorrow. Unfortunately, I cannot predict how long that process will take before there can be an official release.
Regarding upgrading the site to DNN 5.1.1, it is my understanding that a sequence of upgrades to DNN 4.6.2 then DNN 4.9.4 as intermediate steps would be wise. Make sure to create backups before proceeding to the next step. Personally, I am holding off on upgrading my DNN 4.9.4 and one DNN 5.0.1 sites until DNN 5.1.2 is released. I've seen too many issues with upgrades to 5.1.1 posted in the forums.
Here is a Mitchel Sellers blog post concering the upgrade to DNN 5.x: http://www.mitchelsellers.com/blogs/articletype/articleview/articleid/278/upgrade-to-dotnetnuke-500-from-462-or-later.aspx