Are you using ImageMagik or GD? - Check your 'Imaging Integration' setting, alternate them from GD2 to IM and upload a test file on each see what works!
OK, well i'd see if you have any 'rogue' images in your 'uploads' folder, find them and delete them, also in your photopost settings check to see if you have the .gif extension as an allowable file type, if so, remove it... try that.
Toney - success, thank you! I removed .gif from the allowable file types and I can upload images. Is there any reason why that worked? I mean, Photopost does support .gif upload, right?