Well that line you said to check was true is -
## To enable image uploads, make sure the 'images' directory
## is writable, then set this to true:
$wgEnableUploads = true;
$wgUseImageResize = true;
# $wgUseImageMagick = true;
# $wgImageMagickConvertCommand = "/usr/bin/convert";
## If you want to use image uploads under safe mode,
## create the directories images/archive, images/thumb and
## images/temp, and make them all writable. Then uncomment
## this, if it's not already uncommented:
$wgHashedUploadDirectory = false;
Any other suggestions?
Jono