When I attempt to upload an image file File Manager gives this error message:
Upload Error:
Unable to copy file to storage directory. Please check permissions on your upload directory and ensure they can be written to by your web server.
The upload directory - /C5/files - has permissions of 777 so I think something else is going on.
I was just deploying a site for a client on their shared hosting environment and ran into the same message. One other thing to look at is to see if the server has PHP Safe mode enabled. After disabling this everything went back to normal for me :)