@Tim,
I have the same problem with the same error, and have tried every fix I can find on the forums to no avail. I am trying to use my WordPress site as a CMS for many things including my high rez fine art photography.
My 10MB image causes the failure error. I have edited the .ini, I have disabled all plugins, and nothing works. And Hostgator says its a WP problem, not them - that I am allowed more than the WP supposed limit of 64MB for an upload.
So I resorted to good 'ol fashioned File Manager - I went on my C-Panel and uploaded the image file into WP images/11. So now I see the jpg file there in the file manager view along with all other jpgs uploaded in November - BUT the Media Library does not "see" it. Is this approach useless or does anyone know how to get the Media Library to "see" the file and process it?
Thanks!