Did anyone find a resolution? I'm having the same problem in firefox and IE8; image gallery shows the upload at 100% but it doesn't actually upload. For what it's worth, firebug isn't showing any errors.
I don't know if this will help anyone else, but I added
to the .htaccess and it fixed the problem enough that I am now able to upload new images into an album. I still can't attach files that are already in assets, but it is a step in the right direction.
I struggled with this for a long time. Eventually, after a lot of debugging all the image classes in Sapphire, I figured out that it was a memory issue when the GD class tried to recreate the image with the PHP function imagecreatefromjpeg. So, I set the php memory_limit to 128MB from 64MB and it was fine.