Go to App Settings > Files and put a tick next to "Enable blog directories" and/or "Enable user directories." If you choose user directories, you shouldn't have to do anything else. If you choose blog directories, then go to the blog settings and check the permissions for the user account (yours or whoever can't upload) and make sure they have permission for the Media Directory. You may have to go to wide mode to see that option.

ahhh so now the structure is "scalable"..
is it possible to go back to dumping everything into the /media root dir instead?

Very helpful. Thanks.