I have the same problem, found out though that the problem might be, that WP doesn’t accept pics larger than 3MP… so i resized a couple of images (down to 454 x 341) and tried again but with no luck… is this some sort of restriction from it requiring to much memory to process for PHP?? Tried it in both 2.6 and 2.6.1…
I think (hope!) I can help with this – not a solution exactly, but a reason.
Short version: Make sure the file you’re trying to use is saved as RGB. Nothing else appears to work right.
Long version: I had the same problem – abrupt failure of the uploader to make thumbnails and medium images, or to generate captions; the image would upload without error, but existed and would show only full size. I tried several different versions, in different sizes, of the same image (a b&w woodcut) and had the same problem. Just for grins, I tried an entirely different image. The uploader did its thing, and gave me a proper thumbnail and caption.
The only difference I could find in all these images was that the woodcuts were all saved as grayscale files, and the color one, as RGB. Unfortunately, running a woodcut through an image editor and saving as RGB didn’t make it work.
Hope this helps!