And I get the message: /home/account/public_html/tmp/TuxfRhvup and I can verify that the file is created in this temp folder correctly (and tmp has permissions 755)
php.ini has directive:
sys_temp_dir = "tmp"
But I cannot upload any images to my template -- I just get the error message reported above.
And that completely solved the problem! Seems maybe that the error message about uploading could be expanded to check to see if the theme has been extended, and advise it has to be extended before you can upload new images.