If the site were in the wrong directory ... in other words one or both of the configure files has the wrong path, then that could prevent uploading. It would mean that the admin configure file has the wrong path. I doubt it though because there would be more issues than not being able to upload. If the catalog side configure file had the wrong path the images wouldn't even appear....
I'm telling you it's a server issue which is potentially compounded by errors in both the software and server limits configuration.
~Melanie
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