I found something very interesting last night after upgrading.
I would try and upload, and I got the error about not being able to create the directory. So I checked my permissions , and checked, and checked, and rechecked. they were 777 per my ftp client.
So, I created a new albums folder, changed my setting to point to the new folder, and tried again - BINGO !!!! It worked just fine.
After ssh into the server, I saw my problem -
While my ftp was showing the albums folders to be 777, and they were, all my folders and files within the albums directory were owned by me.
But on the new folder that worked, everything created within the new albums directory was own by the apache server user.
I had to chown -R everything within that albums directory to the apache user my server runs as, and all my problems went away.