Tested it again just now. It says "uploaded image is too large". Tried it again with a picture that was one pixel by one pixel. Still I get the same warning.
It's been like this for a month (due to Lemmy disabling the feature to combat people posting risque material). They did this by reducing the maximum image size to zero.
The picture I tested it with was 49kb. I just tested it again to make sure, it still doesn't work.
I know it plays a role though, and it kinda sucks too, Lemmy told me specifically to sign up for this instance because when I was making this account, the other instances were becoming overbooked with people trying to sign up and it was causing too much server stress. And it's not like I can just transfer everything to a new account.