Ok, so I never got any resolution with my image upload problem and decide to upgrade to 3.02. What a nightmare it has been. I tried to just upgrade but all I got was 500 INternal Error message when trying to log into wp-admin even though the blog itself pulled up fine.
So after several hours of trying to troubleshoot with previous forum posts from others not one of the solutions was working. So I decided to start from square 1. I deleted the database and all the files on the server.
I then uploaded the files for 3.02 to my server via ftp. I then went to wp-admin/install.php and presto (so I thought) it asks me for blog title, password i want to set and email. Ok I fill those in and it takes me to the next page that says login. Ok so i try to login as admin with the password i just set and it bounces me to the blog home page. No admin dashboard, just redirect me to the first blog post from the set up process.