Shane:
-> Assign 766 recursive permissions to wp-contents folder of your blog.
-> make sure that you have set the proper upload path in wordpress admin area.
-> disable all the plugins and enable it one by one to find out the culprit one.
-> upgrade your wordpress to the latest version
I’ve done all of these items on my installation, and the problem is occurring without any plugins installed. I am running the most current version of WordPress.
-> remove all unwanted code from htaccess file.
I wasn’t sure exactly what you meant by this, could you elaborate a bit?
Thanks.