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I also struck this problem and I'm happy to share my solution.
My analysis shows that there is a logic error in one of the PHP script files.
The PHP script used to submit a new listing is called submit.php. The logic includes a test to check that the maximum file size is not exceeded. The PHP script to handle updates is called modlink.php. This also includes a test to check that the maximum file size is not exceeded. However, it was testing against the maximum image width instead of the maximum file size. Since the maximum image width in my case is set to 300, this will produce an error every time.
Here is the line of code in submit.php:
$modlinkform->addElement(new XoopsFormFile(_MD_LOGOUP , 'logoup', $xoopsModuleConfig['logo_maxfilesize']));
Here is the line of code that was in modlink.php:
$modlinkform->addElement(new XoopsFormFile(_MD_LOGOUP, 'logoup',$xoopsModuleConfig['logo_maximgwidth']));
The solution is to simply change logo_maximgwidth to logo_maxfilesize.
