I can't reproduce it, all works very well.
Check out:
1 - File size limit
2 - Image size limits, eg 10000px x 10000px too big
3 - Image libraries (extensions) must be installed
4 - See at your server's error log to find more information
Where can I check the four topics you mentioned above and reset them if necessary?
info@elgg.org
Security issues should be reported to security@elgg.org!
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