After you reverted back to 1.6.5, everything ok right? maybe you can log a ticket by sending an email to firstname.lastname@example.org with tmp root login info and wordpress admin login, and how you upload your image. We will try to reproduce and have further investigation.
I have the same issue.
I can't upload any images.
In health status of wordpress i get the following "The scheduled event, litespeed_imgoptm_trigger, failed to run. Your site still works, but this may indicate that scheduling posts or automated updates may not work as intended."
Any help please !!!!