@ gdpodesta. Thanks for posting. As I mentioned in my post to janvankuijk, you may need to provide some more information to get help for this particular problem. Please provide your Joomla version, PHP version, and access to your php configuration (phpinfo). If you want to, you can send me the information via email.
Typically, you may be restricted from uploading files of a certain size on your server, or it could be a mod_security setting that is causing the problem. There is a useful discussion about SWFUpload-based uploaders here: http://swfupload.org/forum/generaldiscussion/86
To solve the Upload Error 500, you need to let me know what size files you are uploading and what setting your PHP has for upload_max_filesize, post_max_size and memory_limit. In addition, it could be a mod_security issue, and it would be good to find out what the error is in your server log. If you can provide this information for me, I may be able to assist you. Depending on your server configuration, you may have to create or alter your .htaccess file to disable mod_security.
I know that the swfupload demos do not actually upload files, and also it depends on your server’s configuration. Actually, it would be really helpful if you could allow me to access the page that has the uploader so that I could test it. Turning on debugging for the uploader will help as well (see link: http://support.michaelgilkes.com/topic/server-io-error#post-278).