There is a bug in photos_licenses.setLicense() (thanks, Christian!). Line 1034 in phpFlickr.php should read:
$this->request("flickr.photos.licenses.setLicense", array("photo_id"=>$photo_id, "license_id"=>$license_id), TRUE);
The problem was with capitalization of $photo_id. If you've been having problems setting licenses, this would be why. I've updated CVS and the fix will be in the next release.