We are using a folder on the C drive outside of our WWWRoot location for the upload temp location...  We granted appropriate NT permissions to the folder.  Most of the time it works, occasionally it fails.  No confirmation on my suspicions from support.  To date I have found no way to reproduce the issue, it just appears in our production error logs.  Haven't tried to simulate (or come up with a reliable way to simulate) two web browsers trying to upload at exactly the same time...