Please post what the error is when trying to upload larger files. Most likely it always comes to to php settings so please place a link to php info on the server. You can grab a phpinfo file from our product details page on the requirements link.
Your one error tells me that permissions may not be correct on those data directories. Track down a category that you can not upload to and make note of that numeric id of that category. ftp to your site and check that numeric category under data directory and make sure it is 777 permissions as well as the 3 subdirectories under that data directory thumbs medium and mini are 777.