The problem should be caused by lack of permissions since Sitefinity tries to start uploading the problem is connected with IIS settings.. When an image is uploaded it is stored in Temp folder until fully uploaded and ready to go to database. Please make sure that you are running your website in Full Trust environment. Check with your host if possibly your website is set up to run in Medium Trust and if yes check if they can move it to Full Trust. Permissions you should grant to App_Data should be (read, write, modify).
All the best,
the Telerik team
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