Hello, I have the exact same problem. I read a number of posts, and both /temp and /logs have 777 privileges.
I still get the "File cannot upload" error.
I just upgraded from 0.9.2 to 1.0.1.... the same error.
Also set the error logging to web browser and all error loggings are checked. Revised .htaccess log_errors and display_errors to On.
Still there's no errors in /logs.
Any other ideas on what causes this?