I thank you very much for your fast response.
I can't figure out why either. I'm running 4.1.0 PL2 and I have a bunch of add ons installed. I have Experience, VaultWiki (which is also disabled because I wanted to use this in its place), album gallery, Point Market System, Yet Another Awards system, Admin login as user, Downloads II, Easy Forms, Micro Newsletter, Intro on Register, Post Thanks hack, Tabs (the ones for the forums and the one to just add new tabs to the nav menu), ucash, Auto Birthday Greeter, Chatbox, Who has read a thread, Websites that referred today.
What I will do is disable everything else and just leave the link directory running and see how that works. I'll edit this post with the results.
EDIT: I disabled all but this plug in and I still had the problem. Then, I went back in the admin cp and disabled this plugin and I was able to upload a picture fine.