"You must upload an image."

Same issue here, just upgraded to beta3 from an old alpha version.

No log errors.
777 sites/default/files/temp
My filesystem is public.

Drupal is at root directory on this server.

If you've checked all the obvious troubleshooting steps (see the documentation), then all I can suggest is that you do some debugging in image_form_validate(), starting from the end where that error message is set.

Since it happens with the garland theme and with multiple browsers, it would probably be a problem with a path or file permissions? What variables should I be looking at? I can see where the error is set but don't know where to begin.

Start here:

  elseif (empty($form_state['values']['images'][IMAGE_ORIGINAL])) {
    if (empty($_SESSION['image_upload'])) {
      form_set_error('image', t('You must upload an image.'));
    }

The error is being set, therefore both ifs evaluate to TRUE. So both things that shouldn't be empty are in fact empty.
The $_SESSION is set a few lines higher up, from $form_state['values']['images'].
So the real question is -- what is in $form_state['values']['images']? Why is it not the right thing?

Install devel module and do

dsm($form_state['values']['images'])

at various points working back from there to find out.

(BTW, this code all predates my involvement with this module, so I am as much in the dark as you! ;)

I'm getting "you must upload an image" error when the file size is too large instead of "The image you uploaded was too big..." error message. I'm using an older version though.

From my Image.info file

; $Id: image.info,v 1.5 2008/01/06 22:15:24 drewish Exp $
name = Image
description = Allows uploading, resizing and viewing of images.
package = Image
core = 6.x

; Information added by drupal.org packaging script on 2009-05-23
version = "6.x-1.x-dev"
core = "6.x"
project = "image"
datestamp = "1243037467"

Thanks for the help. It turns out that the permissions problem was with PHP settings. I had to edit vhost.conf to include:

<Directory "/var/www/vhosts/mt-example.com/httpdocs">
php_admin_value open_basedir "/var/www/vhosts/mt-example.com/httpdocs:/tmp"
</Directory> 

And then restart Apache so it would read the file.

Along the way, another piece of useful advice was to edit php.ini so that:

; Whether to allow HTTP file uploads.
file_uploads = On

; Temporary directory for HTTP uploaded files (will use system default if not
; specified).
upload_tmp_dir = /home/username/tmp

This might've worked for us except we already had open_basedir turned on.

Anyway, the significant point is that if PHP is zapping the image upload, there won't be an error written to the drupal log, but there will be an error written to the server's PHP error log. Hope this helps someone else.

I can probably mark this as closed then if it's all sorted :)