My website runs WordPress 2.9.2.
Had this problem for days and could not find solutions until now.
The link Accuwebhosting provided is a good start.
Anyway this is how I did it.
Use FTP app to do these
1. change chmod of folder “wp-content” to 777.
2. create a new folder named “media” to replace the “uploads” folder.
3. upload all folders and files under “uploads” to “media”
Do these with your browser
4. change “Store uploads in this folder” (admin -> settings -> miscellaneous) to “wp-content/media” and click save
5. try to upload something and it actually work!
Use FTP app to do this
6. change chmod of the folder “wp-content” back to 755.
Do these with your browser
7. go back to “admin -> Media” and confirm that I can upload something without seeing that annoying message again.
8. I kept the “uploads” folder. Guess I do not want to risk loosing old file links I made on my old posts.
I guess you can just create a folder with some name you like under “wp-content” instead of trying so hard to keep using the “uploads” folder for your uploaded files.
Hope this help some users get the Media function to work.
??