When Michie alerted me to her problem with uploading images within the newly upgraded WP 2.5 admin panel, I went investigating.
After taking a look at the first, likeliest culprits (checking to be sure the ‘uploads’ folder existed and had the correct permissions) showed no signs of solution, I turned to the WordPress support forums for possible solutions, and found one right off the bat! (hey, I’d be lost at time without the WP support forums, but finding the right solution on the first search / without trying a zillion unrelated solutions first, is something to cheer about: YAY!)
Referring to this WordPress.org support forum article, which references this solution post by Phil, if you’re getting a error messages like this:
http error…crunching…An error occurred in the upload. Please try again later.
Possible Solution:
Try adding the following lines to your .htaccess file that resides in the root directory where you have your WordPress installed:
<IfModule mod_security.c>
SetEnvIfNoCase Content-Type \
"^multipart/form-data;" "MODSEC_NOPOSTBUFFERING=Do not buffer file uploads"
</IfModule><IfModule mod_gzip.c>
mod_gzip_on No
</IfModule>

there is something wrong with this code, it ruined the dashboard .
keep in mind this is a rather old post, were you really upgrading to 2.5?
d