Creating a new post in wordpress, I try to set a featured image. The image in question is a 355 KB png, but I've also got the same result with a 157 KB jpg and a 34 KB png.
Here are the relevant php.ini settings:
post_max_size = 0
upload_max_filesize = 50
memory_limit = 24M
max_execution_time = 60
pictures upload fine using the browser uploader, but it doesn't set it as a featured image, just inserts it into the post.
using php 5.4.4 and wordpres 3.4.2
It doesn't seem like a upload problem (since it's uploading just fine).
Did you try to click on "Use as a featured image" once the image is uploaded?
Screenshot: http://cl.ly/image/3h232G3i2q29
Cheers.