Give this a try. With ftp, create the files directory and make it read/write/execute by the web server.

Inside the files directory, create the following directories and make them rwx by the web server.

avatars
cache
thumnails
trash

You will have some broken references in the file manager. You might have to go in and delete all of the files listed in the file manager and then upload all of the files, again. After it is all working, make a note to yourself not to delete the files directory. :-)

If this worked for you, please let everyone know, and mark my response as the answer. Thank you.

also try rescanning images in the filemanager