Many people seem to be having problems uploading images in WP 2.5. I was experiencing the same issue (HTTP error would appear after upload). It appears that culprit was my hosting company's mod_security, which was blocking the flash uploader. Host was able to fix the problem by making a few changes to mod_security from their end.
If you're experiencing similar problems with upload, first read forum sticky on the subject and then you may want to contact your host about the mod_security issue.
Hope this helps.