It took 7 postings before you finally set up coppermine as suggested for upload troubleshooting and supporting purposes, which is quite too much in my opinion. Arguing with supporters about the need to do some things the way they need to be done is just very annoying for supporters.
When I went to your site and logged in with the test user account that it took so long to provide I realized that there was not album where the test user could upload to, so I had to create one for him first, which proves that you never bothered to even try for yourself and log in with the test user account and try uploading using that account. This is not what I would call thorough preparation of a support request.
Anyway, I created that album and went on to upload, finally with the needed settings in place (after 7! postings on this thread). On a first attempt I got
The size of file you have uploaded is too large (maximum allowed is 400 x 400) !
when trying to test-upload with my "usual 640x480 pixel test file. On the second attempt, trying to upload a file with smaller resolutions than the low-spec dimensions you require I got
The file 'albums/userpics/flower.jpg' can't be inserted in the album
Unable to create thumbnail or reduced size image.
File: /var/www/vhosts/reemicks.co.uk/httpdocs/copmine/db_input.php - Line: 402
, which usually indicates that there is something wrong permissions-wise on file system level. However, there are more things to check: 777 doesn't necessarilly have to be the correct setting that is needed on your webserver: some webservers fail to work with 777, but need 755. Please contact your webhost on this issue. Judging from your postings, you seem to know a lot about it (much more than the average user looking for support on this board), so you might be self-hosted as well or at least have shell access. If this is the case, review carefully for hardening patches. Usually, on many webservers you mustn't grant the world/nobody write access (which is for example the case on my webhosting account) - I have to chmod 755; if I chmod to 777, all I get are error messages. You should as well look into PHP'S temporary upload folder and make sure that it exists and that it has the needed permissions as well.
And yes: we're aware that the script can only perform PHP's chmod command if it has the priviledge to do so, which is hardly ever the case, so the chmod command issued by the script doesn't do anything particularly usefull in 99% of the times. However, it won't hurt and is beneficial for the small minority with exotic permissions setup, that's why it's there and has been added in the first place. Ignore it for now.
Joachim