Replying to myself with more info:
The problem is something to do with basic .htaccess/.htpasswd
authentication. I removed the .htaccess from the folder and the image upload
works fine. Replace the .htaccess and I can no longer upload.
The .htaccess file reads:
AuthType Basic
AuthName "Enter Valid Login Details"
AuthUserFile /home/sites/<domain>/.htpasswd
Require valid-user
Nothing special, and it has worked up until now.
A server reboot has not fixed the problem, either :/
DD
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