I will probably need to involve Steve (Mr Papa) on this one and he may not be able to get to the forums today. But… the message you are seeing there is not related to the SP settings. As it says – you have received some sort of server error.
You do not say how large the file was you were attempting to upload but it could be that it is larger than your allowed size as set by your server environment. Uploads will normally (by default) be set at 2MB max and there is also a limit on how large data can be that is ‘posted’ (in http terms) to a server. It could also be that your ‘tmp’ folder – a location defined by php where all uploads are sent to before being processed and then moved – is full.
You may need to look at your php error logs to find out the underlying problem or perhaps ask your host if you should have been able to upload the files – remember this is using the POST http protocols.
So the size of the file is the first thing to establish.