In any version of Moodle, if the GD Library is not included with your PHP installation, this will happen. GD does all the handling of photos and images. To see if it is included, go to Admin >> Variables and look for the box about GD. If it says, GD version 2 installed, you should be OK and then this problem is a mystery to me. If it says GD is not installed, you will have to install a new PHP which can take time. Seach in Moodle for "GD" for more information on this trouble shooting. 
Hi Allen!
If you are using easyPHP check out this thread,
http://moodle.org/mod/forum/discuss.php?d=9878&parent=47771
WP1
If you are using easyPHP check out this thread,
http://moodle.org/mod/forum/discuss.php?d=9878&parent=47771
WP1
Thanks WPage!
It worked like a charm!.The front page of my school site is http://www.wjdmm.org/moodle/. Still adding in next week's news, so it's a little sparse. That will change over the weekend.
Thanks Again,
Allen Buchanan
Shorecrest
Hi Allen!
Nice looking site. Glad to have helped.
WP1
Nice looking site. Glad to have helped.
WP1