Hi msunhats,
https://core.trac.www.ads-software.com/ticket/22900
Seems on Windows servers there is an issue with PHP is_writable function. So currently the workaround for 3.5 is to update the wp-config file (yylang1987).
Here’s a good example that worked for me.
https://infinitewp.com/forum/issues/download-failed-destination-directory-for-file-streaming-does-not-exist-or-is-not-writable/
My Temp folder in my php.ini file is
upload_tmp_dir=C:\Windows\Temp
session.save_path=C:\Windows\Temp
The permissions are for ISS_IUSRS is Modify.
Pre WP3.5 everything works great. The double check may be the issue. For now I am adding the extra define to wp_config for all my sites.
sahostking Please let me know if the Temp folder is set differently or if you find a solution.