Was having the same problem as the rest of you, getting the http error. I followed all the instructions (cleared the cache, emptied the /wp-content/uploads/js_cache, disabled all plugins) but nothing worked. I uploaded images using a stand-alone ftp program, but wordpress wouldn’t recognise them.
Finally, I installed the no flash uploader plugin. Now it lets me choose the file, but when I try to upload it gives me a “Specified file failed upload test” error. BUT, if I go to the Media Library tab, the image appears. Then if I click the ‘Show’ link, and then choose ‘Insert into Post’, it works. The image appears as a link, which needs to be removed, but otherwise everything’s okay.
Just posting this in case it helps someone. I’ve been screaming in frustration the last week trying to find a way to get this working, so I feel your pain. It’s difficult to understand how something that’s so obviously broken wasn’t caught in testing.