Do you use GD or imagemagick?
Is it a JPG or GIF or PNG?
Check in var/site/storage/reference and check, if there is a REFERENCE image of your original. Did you change the image conversion rules (image.ini)?
Here's a copy 'n' paste of the debug before and after I try to upload an image (this time to the media section):
http://www.netmaking.no/image_upload_issue.htm
[REMOVED]Please note that after having upgraded to v. 3.2-2, I'm not able to upload images at all, even in the original folder, though 777 permissions are set.[/REMOVED]
[EDIT]The problem is still the same - the images are uploaded to the var/site/storage/original/image folder, but not the var/site/storage/variations nor the var/site/storage/references folder.[/EDIT]