I am having the same issue, and if you have spent the last two days trawling Google as I have, you will see that this issue has been intermiten for quite some years!
Below is a list of things I have tried and hasn't worked for me, but might work for you:
1. Make sure you are running the latest version of flash for your browser.
2. Turn off the flash uploader: http://www.chewie.co.uk/general/wordpress-image-upload-http-error/
3. Edit you htaccess file to amend mod_security access: </IfModule>
4. Changing permissions on the image upload folders to 777 (A security risk in it's own right!)
My quest continues... I will post back here if I find a permanent fix.
Would mind telling me what set up you are running, for example; what version of WP and what host you are using and what server - linux/windows, dedicated/shared/vps/