Did you manage to fix this issue? I’m having the same issue with WordPress 2.9.2. When I try to upload an image from wp-admin/media-new.php, I get the same error.
The only difference is that I didn’t have anything installed on this server before, and I was able to successfully upload one image a while back before I ran into this problem.
Edit: figured it out, the file was bigger than the server’s max upload size.
