Hi People,
I solved my problem! This forum was a big help and I certainly appreciate the time you guys invested in it.
After trying everything possible on my end (rolling back flash to v.9, trying different size images, different format images, images saved with different programs, installing and reinstalling plugins etc.), I gave up and told my server guy to recheck the PHP server setup, even though he was sure that GD is there and properly configured.
This is his response after which everything started behaving like it should. I hope this helps:
“Looking back through everything we had compiled support for jpeg… or so I thought we had… but it turns out you had to do a make clean or the configuration didn’t recognize the new options. Anyway, I ran a phpinfo() and it shows support for jpeg so I think we’re probably good but try it out and let me know.”