Can't change images - fresh install

Hi, I purchased a home membership and downloaded / installed the news of the world template. Installed as directed and received all green ticks at pre-install check etc...

Site came up immediately and the demo install works fine. If I log in and try to change one of the demo images in an existing K2 article or create a new article and add a picture The image selection does not 'hold'

I have tried both local images and already on server images. The image selection process appears to work as the path to the new image shows in the field after I have selected it but when I save all fields go blank and no image preview can be seen. If you look at the site after this process the demo image is gone and a placeholder is now visible - but not the image?? If I right click on the image (in browser) and choose download / view / info I get an error message saying the cache image is unknown??

I have cleared the cache several times, restarted the LAMP server - nothing helps?

Can someone help me get it working please .... out of ideas.

Please check if the K2 directories have a proper permissions - you can check it in the system information at the K2 component in the administrator panel.