There is no WordPress.com issue with image uploads that I am aware of.
It's possible that you have a connectivity issue or a browser related issue. To address them do as follows and report back if your are not successful.
1. If you are not running one of the browsers and versions listed at http://browsehappy.com/ please try upgrading or switching first.
2. If you are using an IE browser in compatibility mode please disable that mode. http://www.sevenforums.com/tutorials/1196-internet-explorer-compatibility-view-turn-off.html
3. If you are running one of the browsers and versions listed at http://browsehappy.com/
(a) Try clearing your browser’s cache http://www.google.com/support/accounts/bin/answer.py?hl=en&answer=32050
If applicable see here for instructions on how to clear the cache for Chrome and Safari on the iPad:
(c) Disable all browser extensions or add-ons temporarily.
(d) Try enabling HTTPS: http://en.support.wordpress.com/https/
Add both *.wordpress.com and *.wp.com to your list of trusted sites under the Security tab. Make sure to uncheck the box for “Require server verification (https:) for all sites in this zone.” http://en.support.wordpress.com/https/#frequently-asked-questions
4. You can use this link to see if your flash is up to date. http://www.adobe.com/software/flash/about/ If it’s not then go to http://www.adobe.com/products/flashplayer/ and download and install the latest version of flash.
5. Try using another browser.
6. If you are not successful let us know:
(a) Exactly what kind of device you are using to connect to the internet and to WordPress.com.
(b) Exactly which browser (and version of it) you’re using by checking here if necessary http://www.whatbrowser.org/