set featured image problem

I upgraded to 3.8, I cannt now upload media into the media library.
It look slike it is uploading but then when it has finished, the image just appears grey.

I am using Servage not GoDaddy, it seems to be the same problem as many other users are having.
Any ideas what to do?

I have tried:
1/ deactivating all plugins
2/ switching to the Twenty Eleven theme but same problem
3/ resetting the plugins folder by FTP

Something must have changed in WordPress