I am having a similar issue. I have NOT modified the plug-in or modified the code in any way. I tried resizing the photo, changing the format- JPEG, GIF and PNG- none of them work.
I am using the plug in to sell just one product by instant download, so I have the option to work around this issue, am just wondering why it doesn’t work. Could it have something to do with the recent WP security update or the theme? I tried switching to the WP 2012 theme just to see if it makes a difference. Any suggestions?