webjunk

Have you tried both the Flash and the regular browser upload? If yes then it probably is a permissions issue.
http://codex.wordpress.org/Changing_File_Permissions
And make sure you actually have the wp-content/uploads directory actualy exists.

http://wordpress.org/extend/plugins/wordpress-comment-images/

Try renaming the plugins directory. Create a new empty pugins directory with the same permissions as the old.
Second, Try renaming the theme directoy you are using. Create a new theme directory with the default (twenty-ten) theme files using the same directory name as the old one.
See if it comes up from one of those.

Without actually seeing your site it is difficult to know. Do not really get a good picture of what you are trying to do or how you are doing it.

@troccola
Without a link to your site can not tell you anything

You were supposed to do more an read the page on permissions. The idea is to check the permissions of your files and directories.

ALso look in your main WP directory for a file called: error.log and if so then post the last few errors into pastbin.

But it sounds like you have the wrong permissions somewhere. And remember too much permissions is just as bad as too little. It must be the Correct permissions as per that page.

Not sure why the permalinks have that effect but try this. In the Contact form 7 plugins directory open includes/classes.php
Around line 109 you will see:
$url = wpcf7_get_request_uri();
change that line to be:
$url = '/index.php/'.wpcf7_get_request_uri();

See if that resolves it.

Are you hosted under Windows or Linux?