Hey mark,
I don't think your host really know what they are talking about... It almost sounds like a canned response they give users so they don't have to help them...
The code is GPL I don't know of any plugin in the WordPress repository plugins directory that uses IonCube, that would violate the Free WordPress repository plugins guidelines... The plugin works fine on thousands of different hosts and on PHP 5.3 just fine. I would consider your choice of hosts they sound a bit shady to me...
There is no error to recreate. This is the error...
duration: 90.334 secs
code: 500
status: Internal Server Error
The process timing out at either the Apache layer or PHP layer because of restrictions setup by you hosting company...