open_basedir restriction in effect despite file directory within web root
The key here is that PHP is attempting to create the temporary file in a public directory. If you refer to the your PHP settings, find out what is specified for the 'upload_tmp_dir'. Use a phpinfo() call to display this, also available in the Status Report by clicking on the PHP version number. This directory has special privileges that open_basedir will not block. Set your drupal temp directory to this path explicitly and it should work.