BuddyPress.org

Check all of your blogs.dir, 1, and uploads directory’s permissions, and see if any plugin you’ve installed previously has locked down any of them with .htaccess or .htpasswd files or modifications.

I’ve seen a few plugins (caching, or roles/capability/permissions) put strange rights on those directories, that allow the uploading of the initial image, do not allow the cropped images to get saved, and then disallow the website from accessing any image in those directories.

Physically go through each directory and manually assign the permissions yourself. Then also look for the existance of .htaccess or .htpasswd files in your wp-content/blogs.dir directory, and delete them if they exist.