(5.X) - YUI image upload problems

Drupal 5.12
Configuration file Protected
Cron maintenance tasks Last run 1 weeks 1 days ago
Database schema Up to date
File system Writable (public download method)
GD library bundled (2.0.28 compatible)
MySQL database 4.1.22
PHP 4.4.6
PHP register globals Disabled
Unicode library PHP Mbstring Extension
Web server Apache/1.3.37 (Unix) mod_auth_passthrough/1.8 mod_log_bytes/1.2 mod_bwlimited/1.4 PHP/4.4.6 FrontPage/5.0.2.2635.SR1.2 mod_ssl/2.8.28 OpenSSL/0.9.7a
----------------

I am having simialr problems as others here having YUI image upload problems but found no answers in any of the (multiple) posts.

my file_system_path shows 'files'
the temporary directory shows 'files/tmp'

Note: this was originally just '/tmp' but gave me YUI image upload problems (nothing at all uploaded). Changing it at least
got something working!

Also, I did not originally have an 'images' directory under 'files' but found a post somewhere which said something like "oops sorry forgot to put that in the documentation".
I thus added the directory and made it 777
Still have problems

Current status:
Adding an image pops up the YUI uploader dialog
The image URL box shows "image url here"
I choose the upload option, Browse to my local HDD and select a small image file.
Click on the upload link.
Wait a few seconds.
Error msg pops up "Upload faild: errror reading uploaded file"
Nothing found in server 'files/images' folder
However in 'files/tmp' folder are a series of "tmp_xxx" files alll timed and dated respective to my failed attempts.

The upload filename box stays showing the file I wanted to upload.

Perversely, having had several hours of tinkering and having had a file called 'images' with no extension appear in the 'files' folder, I decided to delete the 'images' folder and try again.

Uploading a file from my HDD now works and the image appears in the YUI editor window.
I do not however get an "UPLOADED" response message.
The image url box however shows "/drupal-5.12/files/images"
The 'files' folder now has a new file showing named 'images' with no extension.

After saving the content the image shows on my site.
If however I look at the source for that page it shows:

$path = file_directory_path();
  //Append trailing slash to path if not there 
  if (! (substr($path, -1) == '/')) {
    $path .= '/';
  }
  $path .= 'images';
  $file = file_save_upload('upload', $path, FILE_EXISTS_REPLACE);
  if (!$file) {
    $response->status = 'Error Reading Uploaded File.';
    print drupal_to_js($response);
    exit;
  }
  
  $response->status = 'UPLOADED';
  $response->image_url = $file->filepath;

  print drupal_to_js($response);
  exit;