Well... I was guessing.... I was just able to upload a junk pic, so I'm going to have to go out on a limb here... Are you using IE by any chance?
If so, can you turn on Compatibility View ; and try again... See
this post about where to turn on Compatibility View...
The posting stuff is doing things with JavaScript, and that could (most likely is if it's IE) be messing it up.
If you are
not using IE... Well, I'll have to dig into the server logs and see if I can't find out exactly what it is your browser is requesting when you load up that page.
Edit:
Oh... Forgot to mention this. Images also need to be either: .jpg, .jpeg, .gif, .png (I think; typing off what I can remember from a quick glance.)
There is also a size maximum. Though, unless the image you're posting is huge, you probably won't hit that.
-J