I don't think it has any thing to do with the dimensions, but rather file size and memory needed for the server to resize the image.
To troubleshoot, enable error reporting by add the following code at line 1:
also, disable the redirect after the upload in the update record server behavior, then add code to write the DFP Debug status and contents of the FILES array to the body of the page:
<pre><?php var_dump($_FILES); ?></pre>
<?php echo WA_DFP_AllUploadsDebug(); ?>
run a test on a larger image again and post the results.