Alright!
Cool, I figured it out.
I recently upgraded my host to use an SSL cert to keep my credentials safe when logging in.
(Yes, I am a paranoid security freak and take extreme measures.)
Most do not realize that no matter how complex their password is, it is sent in clear text when logging in and a simple app like network miner or Cain and Abel can grab any password in a second.
ANYWAY, when I logged in through http instead of https I was able to upload without any problem. So for some reason I cannot post new images when logged in to the admin console using an SSL secured connection.
No big deal cause I only upload every so often and then work from the queue. So I will just use http to upload. Not sure how or even IF this can be fixed in PhotoQ or WP. I would not even know where to look.
If you have any ideas please let me know. I am just glad there is a workaround.
Thank you again for making such a great plug-in.