I've only been uploading photos ranging from 2.5-7Mb in size. I tried batch testing some paint scribble under 40k and they didn't upload for the same reason.
What is the size of photos that you try to add?
can you tes with small photo (300Ko)
The flash-scripted Browse button under Select Files (in Administration Home -> Photos -> Add -> Upload Photos) works to where I can browse photo albums and select all photos I want in an entire album, however, I receive an IO: Error #2038 when I select 'Upload' and I can't seem to figure out how to fix this. Uploading does work. The 'old style' form works fine, albeit slower.