Hi everyone, i had exactly the same problem (version 2.8.5) and tested a couple different “solutions” that i found by googling. None of them worked for me.
At last i solved the problem and for me it was that the “Store uploads in this folder” was set to “wp-content” by default. When i checked my webserver i saw that all the pictures that i uploaded earlier was in fact stored in that folder, even though i got the “http error” when the statusbar was on “crunching”.
When doublechecking the URL to the images that has been published on the blog (but could not be loaded) they were in fact pointing to “/wp-content/uploads”.
I changed the “wp-content” to “wp-content/uploads” and then the function for image uploading started to work fine.
Step by step (worked for me):
1. When logged in on your blog, choose “Settings” and then “Miscellaneous”.
2. Change “Store uploads in this folder” to “wp-content/uploads”
