Internal server error -- uploading post images

I get an internal server error while trying to upload images. The images are 15KBs and 500x500.

EDIT

For some reason I have of mix of user and group called “ghost” and my own Ubuntu user “cbtree” for folder permissions and whatnot? Is this normal?

What about running this command inside the Ghost installation dir?

sudo chown -R ghost:ghost ./content

You should use ghost doctor to check your permissions, and it will tell you which commands to run to fix them.