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Actually that is NOT what the response message says to be fair. It actually says '999 - Unknown server error (check image size - may be exhausting memory)'. That 'may be' is pretty important as it it is just a suggestion of a possible cause.

The important part of the response message is 'Unknown server error'. This indicates that the file uploader code has done what is needed - sent everything up to the server for processing but instead of getting either a success or known failure response code has just got back a message that the server failed. The reason being unknown.

There is a strong chance that the reason for failure may be buried in the site php error log.

Possible causes may be that the php 'tmp' folder is missing or was full. That the upload php ini settings are set too small or the POST variable settings set to small (unlikely that one).

If this is repeatable every time an upload is attempted then I would suggest a conversation with your hosting company. If this was a one off then it could have been a full 'tmp' folder that has subsequently been flushed.