Image Upload Error after upgrade to 3.0.1 – Need help.

I upgraded to 3.0.1.

Edited my .htaccess to this:

RewriteEngine On
RewriteBase /  

#uploaded files
RewriteRule ^(.*/)?files/$ index.php [L]
RewriteCond %{REQUEST_URI} !.*wp-content/plugins.*
RewriteRule ^([_0-9a-zA-Z-]+/)?files/(.+) wp-includes/ms-files.php?file=$2 [L]

# add a trailing slash to /wp-admin
RewriteCond %{REQUEST_URI} ^.*/wp-admin$
RewriteRule ^(.+)$ $1/ [R=301,L]  

RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule . - [L]
RewriteRule  ^([_0-9a-zA-Z-]+/)?(wp-.*) $2 [L]
RewriteRule  ^([_0-9a-zA-Z-]+/)?(.*.php)$ $2 [L]
RewriteRule . index.php [L]  

<IfModule mod_security.c>
<Files async-upload.php>
SecFilterEngine Off
SecFilterScanPOST Off
</Files>
</IfModule>

Deleted the blogs.php file.

The site seems to be working fine, I’m just getting these errors when attempting to upload and insert images.

If I use the Flash uploader I get – HTTP error after it finishes the crunch.

If I use the Browser uploader I am able to upload the file, but I get a 500 error when attempting to insert the image.

I’ve looked for an answer to this, but haven’t found it yet.

Thanks for any help you folks can send my way.