I had a similar problem. Usually, the process of uploading would go
one stage further, to the upload manager, which would give me a
"Failed to connect to server" message. I have not yet found a
solution.

I am uploading from China and I read that there is a problem in doing
this but I tried using a vpn to the US (witopia) with the same result.
(There is a workaround for access to web albums in China, by the way:
http://www.shanghaitechwriter.com/2009/08/05/accessing-google-picasa-web-album-in-china/

Good luck.

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