After trying for days to work out why image uploads only work when the folder is CHMODed to 777, I think I've worked out that my domain doesn't have the right permissions to write to itself. Bear with me...
Uploading will only work when I CHMOD the uploads folder to 777. It won't work on 755, meaning that the domain isn't recognising itself as being the owner and therefor able to write to the folder.
This problem is on a new Linux dedicated server. I'm sure all I need to do is set permissions so WordPress can write to its own directories.
How can I do this?