Well, I have the same problem. Everything seems to work well. I can post my stories in txt, but I can't upload media files.
The image should have been uploaded in /wp-content/uploads/ but there is NOTHING. not even the uploads folder.
I'm working with an Intel Mac Pro, uploading with Fetch. But I doubt if my settings are oke in the Config file.
My domain is "www.xxx.nl"; ALL my WordPress files resides in the folder "yyy" in the root = in "http://www.xxx.nl/yyy/"
The root also has a folder "cgi-bin". The Unix path to this CGI directory is: /www/htdocs/xxx, but I don't use this cgi-bin folder for the WP files.
But after trying to upload a photo there was this error message:
Unable to create directory /www/htdocs/xxx/yyy/wp-content/uploads/2009/03. Is its parent directory writable by the server?
(sorry for my bad English!)