Not a question but a quick heads up on the above occurring in the last few days for a client we've got running on a Rackspace Cloud server.
Basic scenario is a reasonably trafficked image heavy wedding blog with 100K+ unique views per month which we have running on a UK 2GB Rackspace Cloud Server instance. 2 days ago the client began experiencing the intermittent HTTP Error message on the flash media uploader that seems to have been doing the rounds over the last few years. Reverting to basic uploader generates a timeout message sometimes.
Having done the rounds of the various potential solutions (htaccess amends, increasing past_max_size etc etc) with no success, I remembered we had the WP Smushit plugin installed.
Deactivated the plugin and voila media uploader will now do 40+ images without issue.
All I can figure is that the Smushit service is experiencing response time issues and that causes the uploader to fall over. Evidenced perhaps by the fact that the folder where images are uploaded showed the images being uploaded without issue but the uploader showed a 0x0 dimension image in the uploader modal window?
So if you hit a similar issue and you have WP Smushit plugin, I'd try disabling that before spending too many fruitless hours trying various amends to htaccess and php.ini files.
Hope it helps someone.