While I was searching the forums, I came across this topic:
"Photos not uploading"
http://en.forums.wordpress.com/topic/photos-not-inserting-in-post?replies=43#post-305349
I had some of the same problems that a few of the folks on the above link had, specifically, I'd upload a photo and I'd just get a white screen that said "done." Not sure if the reason I had this is the same as some of the other folks, but I believe that it was happening to me due to intermittant internet connectivity (I'm in a 3rd world country on a satellite dish).
The "photo not uploading" happens 9 tries out of 10 and I've developed a strategy that seems to have fixed it. If you're having the same problem, you might give this a try:
Instead of clicking on the Upload/Insert - "Add an image" icon, try instead a "right click" and "open in new tab." In the seperate tab, a white screen appears with "add media files from your computer." You can now access photos in your gallery or upload new pics. Choose "select files" and upload normally. After upload and "crunching," you'll see the pic, if the photo details are compressed click on "show," if you can already see the photo details, edit the url and photo name to your liking, select photo placement as normal and then click "save all changes."
At this point THIS screen (in the new tab) will go white but if you click back to your previous tab, you'll see the photo appear in your blog. If you want to save additional photos, go to the 2nd tab and click the back button. It will return you to the "add media files from your computer" screen again. In this way, you can continue to add photos without "upsetting" your main blog editing page. And, if the 2nd tab times out, locks up, or otherwise crashes, just go back to the main tab and right click the photo icon and open another 2nd tab.
I usually upload 2 or 3 pics on the 2nd tab and then save my work on the first tab. If, while saving your blog update on the 1st tab crashes and you lose your work, open a 2nd tab and instead of clicking on upload new files, click on the gallery. Your photos are still in there and you can re-upload them to your blog entry without having to bring duplicate files into your gallery.
hope this helps those of you in "weak" internet areas...