As I mentioned, I'm using the latest Chrome release - 11.0.696.68
My OS is 64 bit Win 7. I'm using the browser uploader (Select Files > From Computer).
Here's a new factoid - the upload works if the image is on the PC's internal hard drive (I hadn't checked this before, because that's not where my image library is stored).
I store all of my data on an external Windows Home Server system (specifically an HP Media Smart Server 495EX). The WHS image folder is mapped to Drive Z:/. My normal method of accessing my images (they're all on the WHS system) is via drive Z:/ - and this is what doesn't work. Since your reply I tried uploading the image directly from the server (that is, not as drive Z: but straight to the network server) and surprisingly that worked.
So, here's what we have -
1. Image upload from C:/ works - but that's not where my files are
2. Upload from Z:/ gives me the error message cited in my original email (this mapped drive is for the image folder within the overall documents stored under WHS for convenience of access to my images - especially for my image database program)
3. Upload straight from the server without going through the mapped drive works.
Summary - after these tests, I now have a work around. However, it would be nice to know why the mapped drive can't be accessed via Chrome when it works in fine in Firefox.
Note - this problem is unique to WordPress. I just logged on to my SmugMug photo gallery and was successfully able to upload an image from Z:/ to SmugMug that will not upload to WordPress. Very odd.
Any more ideas.