In debugging this issue, we came across two problems:
1) Permissions on the image upload folder - The IUSR_<Machine_Name> Account had no permissions set on the upload folder. We set it to full.
2) PHP 5.3 has deprecated the split function, this function is used in the WA_ValidationToolkit/WAVT_Scripts_PHP.php file. We did a find to replace all occurrences of the split function with the explode function. I am attaching a fixed copy of that file to this reply.
Paul:
Let me know if this helps out or not. If not, I will open a ticket for you as well.