Unhelpful error message
That error comes from file_managed_file_save_upload() (around line 638 of the core file.module file). 

Just before that error is a call to watchdog() with a much more descriptive error message:


  The upload directory %directory for the file field !name could not be created or is not accessible. A newly uploaded file could not be saved in this directory as a consequence, and the upload was canceled.


So it looks like it might be a permissions issue (does your web server own the sites/default/files folder?)

In case you haven't come across it before you can see you "Recent log messages" at http://mysite.com/admin/reports/dblog, it's often the best place to look when the front-end messages are unclear.