Psychopig7 on "Can't upload images .jpg or .png since 3.6.1 'Sorry, this file type is not permi"

Hi Guys
Everything has been working perfectly, until I upgraded from 3.6 to 3.61.
Now whenever I try to upload an image file I get the message 'Sorry, this file type is not permitted for security reasons.'
This is very frustrating as I can no longer maintain the website and put new images up.
I have looked through the forum, and seen that this has been an issue in the past, and I have tried adding Esme's mime code, but no go.
If this is not fixable, can I revert to 3.6, and how do I do this?
Before that, however, if you want to look at my site I would be happy to give you login privileges.
My site is http://www.7rarsa.asn.au
Noel