Okay, make sure that localhost is configured to listen to HEAD requests. The vB uploader sends a request of type HEAD before uploading the file and if the request fails, we get an "Invalid URL" error. I already know that HEAD requests are declined by my server, so this is a possibility.
Make sure also that the server isn't configured to deny HTTP requests to a user when the user makes them too close together. Image importing is going to make over 200 requests per second, and if the server refuses the connection, it won't be able to read the image.