problems with changing the logo and uploading pictures

Here is the .htaccess file before it was modified. I had to change it because I was getting error 500 on in IE. I commented out untill I was able to get the install screen. I went back and tried to uncomment line by line, but this is the least I could get away with if I wanted to get the install screen.
#
# Apache/PHP/Drupal settings:
#

# Protect files and directories from prying eyes.

Order allow,deny

# Don't show directory listings for URLs which map to a directory.
Options -Indexes

# Follow symbolic links in this directory.
Options +FollowSymLinks

# Customized error messages.
ErrorDocument 404 /index.php

# Set the default handler.
DirectoryIndex index.php

# Override PHP settings. More in sites/default/settings.php
# but the following cannot be changed at runtime.

# PHP 4, Apache 1.

php_value magic_quotes_gpc 0
php_value register_globals 0
php_value session.auto_start 0
php_value mbstring.http_input pass
php_value mbstring.http_output pass
php_value mbstring.encoding_translation 0

# PHP 4, Apache 2.

php_value magic_quotes_gpc 0
php_value register_globals 0
php_value session.auto_start 0
php_value mbstring.http_input pass
php_value mbstring.http_output pass
php_value mbstring.encoding_translation 0

# PHP 5, Apache 1 and 2.

php_value magic_quotes_gpc 0
php_value register_globals 0
php_value session.auto_start 0
php_value mbstring.http_input pass
php_value mbstring.http_output pass
php_value mbstring.encoding_translation 0

# Requires mod_expires to be enabled.

# Enable expirations.
ExpiresActive On
# Cache all files for 2 weeks after access (A).
ExpiresDefault A1209600
# Do not cache dynamically generated pages.
ExpiresByType text/html A1

# Various rewrite rules.

RewriteEngine on

# If your site can be accessed both with and without the 'www.' prefix, you
# can use one of the following settings to redirect users to your preferred
# URL, either WITH or WITHOUT the 'www.' prefix. Choose ONLY one option:
#
# To redirect all users to access the site WITH the 'www.' prefix,
# (http://example.com/... will be redirected to http://www.example.com/...)
# adapt and uncomment the following:
# RewriteCond %{HTTP_HOST} ^example\.com$ [NC]
# RewriteRule ^(.*)$ http://www.example.com/$1 [L,R=301]
#
# To redirect all users to access the site WITHOUT the 'www.' prefix,
# (http://www.example.com/... will be redirected to http://example.com/...)
# adapt and uncomment the following:
# RewriteCond %{HTTP_HOST} ^www\.example\.com$ [NC]
# RewriteRule ^(.*)$ http://example.com/$1 [L,R=301]

# Modify the RewriteBase if you are using Drupal in a subdirectory and
# the rewrite rules are not working properly.
#RewriteBase /drupal

# Rewrite old-style URLs of the form 'node.php?id=x'.
#RewriteCond %{REQUEST_FILENAME} !-f
#RewriteCond %{REQUEST_FILENAME} !-d
#RewriteCond %{QUERY_STRING} ^id=([^&]+)$
#RewriteRule node.php index.php?q=node/view/%1 [L]

# Rewrite old-style URLs of the form 'module.php?mod=x'.
#RewriteCond %{REQUEST_FILENAME} !-f
#RewriteCond %{REQUEST_FILENAME} !-d
#RewriteCond %{QUERY_STRING} ^mod=([^&]+)$
#RewriteRule module.php index.php?q=%1 [L]

# Rewrite current-style URLs of the form 'index.php?q=x'.
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule ^(.*)$ index.php?q=$1 [L,QSA]

# $Id: .htaccess,v 1.81.2.3 2007/09/21 12:24:22 drumm Exp $
I got the logo to work by changing the pathe to /themes/logos. Then used winSCP to move the logo pic to that file.
But now when I try to enter pics to creat contence I get the same box an red mark. I go to create content /newsletter then I upload a pic with Image picker. I get the same result. I right click on the image and the path is files/imagepicker/a/administrator/browser/comks81711-1.jpg with of cource my doamin in front of it. I don't know why it is in foldr a. The name starts with a c. You think it would be placed in file c in the imagepicker. Also the name of the file is changed after uploading.
The permissions on the files dir is 777. I understand that the tmp file has somthing to do with files that are uploaded. The tmp file is 777 as well. Thanks for your help on this. I have been looking for help about this issue for some time now. Getting help for drupal is like takeing a trip to the moon :) Anyhow, thanks for the help. If there are other placess I can read and understand drupal and how to enter and setup the application, please enter some urls for me.
Also I installed wamp on my xp box to see if it would work and then created a db and installed drupal 5.3 to see if it was able to upload and see pictures. I installed all the mods that are on my linux server. Pics upload and I can see them. I did not have to modify the .htaccess file before install. This is frustrating. I wish I know why my server is doing this. Please help me. Thank you