Spyros:
Glad that worked! Yes, I'm not satisfied either, but at least there is a workaround. For me, this is a fresh build, so I do not have broken image issues site-wide (reminds me of our large install migration from 1.9 to 2.0). I am just now putting first images up...
I am feeling like this is a Bluehost issue, whereby the draftfile.php process is telling the Moodle db what the file name is, but the SQL set up at Bluehost may be doing another thing with regard to file naming in moodledata? Maybe the reference to image files always gets a capitalized extension when handled by Bluehost? I did fresh installs of 2.8, 3.1 and 3.2.1+ all with same results. I have a 1.5 year old 2.8.3 install also on Bluehost that is working fine.
Just for the record, for me, this conversation never really involved anything to do with "easy installs" or "uploader" installs with Bluehost. All my installs are manually performed.
Tracker?
best, dan