Still having problems:

I have added the folowing to my application's web.config:
 
<appSettings>
  <add key='CuteEditorTempPath' value='~/CuteEditorTemp' />
</appSettings>

Cute Editor is installed on the default location : CuteSoft_Client/CuteEditor
And I created the folder CuteEditorTemp with read+write rights

And I still get the following error after uploading an image:

CuteEditor needs read/write permission to the system temp folder. If your host doesn't allow such access, you can specify a different path by adding an entry to your Web.config file. <add key='CuteEditorTempPath' value='c:/mysite/mydirectory' />

Thanks,
Marcos