I found out that in my case when you upload a file with extension .JPG (capital letters), the upload will fail. However, when you rename the file to extension .jpg (small letters) the upload works fine. I do not know yet where to change allowed image file types and add .JPG (capital letters).
I do not have any authorisation problems, using libcurl/7.15.5 OpenSSL/0.9.8c zlib/1.2.3 libidn/0.6.5, single wordpress 2.9.1, buddypress 1.2.1 and PHP 5.2. I am using the latest Tweetstream version.