I checked my FTP client and it appears the files are uploading and are there.
I checked Admin>Settings>Miscellaneous and the path there seems to be fine. (It automatically creates folders depending on the year, and gives it a folder number)
I have WordPress 2.8.5 and I'm using Flash 10.
My plugins did need updating, so I upgraded them, however I attempted to again upload some jpegs and they unfortunately didn't work.
I tried the mod_security thing. However, when I created the .htaccess text file in the wp-admin for some reason it wouldn't show up within the file?? Therefore, I couldn't add the code....
Thanks guys, I appreciate your help.