I think you may just need to adjust the path in the globals file to get the file to upload to the correct image folder. If the PowerCMS is in a sub directory in your site then you should be able to reference the image folder in the root of your site like this:
$WAGLOBAL_Images_Folder = "../image_folder";
As for the error you are getting this looks to be a custom 500 level error that your hosts has enabled for your account. In order to determine what this error is you will need to request that the custom error reporting pages be turned off at least temporarily for your site so you can get an idea about this error.