class.upload.php is a powerful and mature PHP class to manage uploaded files, and manipulate images in many ways. The script is available under a GPL license.
more info about the class
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However, it has been reported to work on Windows, and also with IIS.
Can you copy here the logs from the class, that you can output after the class stops with the file error?
Also, check if you have magic quotes on, it may affect the backslahes that Windows uses in filenames.