Permissions: Ok there may be something here. I can access the ftp of the live site host and I just noticed something.
I can give the uploads directory all permissions (write read execute: 777) however wordpress will create a dir for a new user avatar (uplaods/avatars/59 for ex) but it cant upload files inside it. Apparently any directory I create with the ftp user has a different owner than the directories created by wordpress itself and even though permissions are set to 777 wordpress is giving me a write permission error when trying to upload any new avatar.