NEVERMIND, I solved it with the help of this thread:
http://ww.wp.xz.cn/support/topic/media-upload-pronlem-permission-denied-in-includesfilephp-on-line-348?replies=17
Traypup’s solution at the end of the thread worked for me. Since I have a VPS, I went into my WHM, then Apache configuration, then PHP and SuExec Configuration, then changed the PHP 5 Handler to “suphp”. After applying these settings, I tried uploading an image and everything went through without a problem.
Wow, thank you so much. That was exactly what I needed. I will set the theme to be a child theme. Thanks again!