I am testing out elgg 1.7.1 to see if it will fit my needs and in my testing I have created not only the admin account but another user.  After creating the extra user, I put a profile pic on it and it uploaded fine.  I have since tried to change that pic and it seems to upload it, until after churning for a while it just tells me there was a problem uploading the pic.  I have found that some work and some do not.  It doesn't seem to matter with size and they are all JPG files.  Any help would be appreciated.