user_update event triggers file errors with profile images

REPORTED PROBLEM: When users submit a profile image, it saves correctly... but it also displays a file.inc error message:
"The specified file temporary://Untitled 2_0.jpg could not be copied, because no file by that name exists. Please check that you supplied the correct filename."

ANALYSIS:
A backtrace from the error reveals a call to user_save triggered by the Rules event user_update, causes the above error. I have one rule associated with that Event. It sets a field value on the updated account based on an external API. This triggers an entity_save, which throws the error. The error appears whether I force saving during rule execution, or allow rules cleanup to do it. If I disable the rule, the error disappears.

STEPS TO REPRODUCE:
1) create a rule that fires on "After updating an existing user account", which modifies a field value on the account. Or just import the following rule:

{ "rules_modify_user" : {
    "LABEL" : "modify user",
    "PLUGIN" : "reaction rule",
    "REQUIRES" : [ "rules" ],
    "ON" : [ "user_update" ],
    "DO" : [
      { "data_set" : { "data" : [ "account:mail" ], "value" : "ohthehugemanatee@localhost.localdomain" } }
    ]
  }
}

2) Edit a user, and add or change the profile image.

This may also be a problem with rules that fire on new account creation, I'm not sure.