PHP errors producing 500 error code (lighty)

If there is an error in my PHP code (above notice) then the page will return a 500 server error. I assume this means my lighty & PHP (cgi) are set up wrong.

I'm running Ubuntu 10.04

If I change settings in my /etc/php5/cgi/php.ini (directed to this file by info from phpinfo) it has NO effect on how PHP runs.

Lighty conf:

server.modules = (
"mod_access",
"mod_alias",
"mod_accesslog",
"mod_compress",
# "mod_rewrite",
# "mod_redirect",
# "mod_evhost",
# "mod_usertrack",
# "mod_rrdtool",
# "mod_webdav",
# "mod_expire",
# "mod_flv_streaming",
# "mod_evasive"
)

## a static document-root, for virtual-hosting take look at the
## server.virtual-* options
server.document-root = "/home/######/"

## where to upload files to, purged daily.
server.upload-dirs = ( "/var/cache/lighttpd/uploads" )

## where to send error-messages to
server.errorlog = "/var/log/lighttpd/error.log"

## files to check for if .../ is requested
index-file.names = ( "index.html", "index.php",
"index.htm", "default.htm",
"index.lighttpd.html" )


## Use the "Content-Type" extended attribute to obtain mime type if possible
# mimetype.use-xattr = "enable"

#### accesslog module
accesslog.filename = "/var/log/lighttpd/access.log"

## deny access the file-extensions
#
# ~ is for backupfiles from vi, emacs, joe, ...
# .inc is often used for code includes which should in general not be part
# of the document-root
url.access-deny = ( "~", ".inc" )

##
# which extensions should not be handle via static-file transfer
#
# .php, .pl, .fcgi are most often handled by mod_fastcgi or mod_cgi
static-file.exclude-extensions = ( ".php", ".pl", ".fcgi" )


######### Options that are good to be but not neccesary to be changed #######

## Use ipv6 only if available. (disabled for while, check #560837)
#include_shell "/usr/share/lighttpd/use-ipv6.pl"

## bind to port (default: 80)
# server.port = 81

## bind to localhost only (default: all interfaces)
## server.bind = "localhost"

## error-handler for status 404
#server.error-handler-404 = "/error-handler.html"
#server.error-handler-404 = "/error-handler.php"

## to help the rc.scripts
server.pid-file = "/var/run/lighttpd.pid"

##
## Format: <errorfile-prefix><status>.html
## -> ..../status-404.html for 'File not found'
#server.errorfile-prefix = "/var/www/"

## virtual directory listings
dir-listing.encoding = "utf-8"
#server.dir-listing = "enable"

## send unhandled HTTP-header headers to error-log
#debug.dump-unknown-headers = "enable"

### only root can use these options
#
# chroot() to directory (default: no chroot() )
#server.chroot = "/"

## change uid to <uid> (default: don't care)
server.username = "www-data"

## change uid to <uid> (default: don't care)
server.groupname = "www-data"

#### compress module
compress.cache-dir = "/var/cache/lighttpd/compress/"
compress.filetype = ("text/plain", "text/html", "application/x-javascript", "text/css")

include_shell "/usr/share/lighttpd/create-mime.assign.pl"
include_shell "/usr/share/lighttpd/include-conf-enabled.pl"

$HTTP["remoteip"] =~ "127.0.0.1" {
alias.url += (
"/doc/" => "/usr/share/doc/",
"/images/" => "/usr/share/images/"
)
$HTTP["url"] =~ "^/doc/|^/images/" {
dir-listing.activate = "enable"
}
}


Anyone else had this problem?