All the sudden I am having problems while uploading to the media library. My first course of action is to deactivate plugins to see if any are causing issues. Sure enough, if deactivate WordPress Firewall 2, I can upload images to my library OK. With it on, I cannot. I have this same problem with several sites I manage and all work fine when WordPress Firewall 2 is deactivated so I know it must be a problem with it.
Try uploading an image to your media library with WordPress Firewall 2 activated and you'll see the problem.