While I was on your site I was able to see that you have IM installed on your server and was able to successfully upload a GIF image and have it create a thumbnail but I'm puzzled yet why it's rejecting JPG images but not GIF images. If anything I would've expected the reverse.
I also took a look through the code to see what would produce the "Invalid File" error message. Essentially that error comes if the file does not exist in the temp folder after the upload so it doesn't make sense that GIF files would work but not JPGs.
I'm going to ask the rest of the guys for their thoughts on this one.