Hello again,
I wanted to update you again on the Gallery upload issue.
I have recently finished a successful test upgrade of my website to Joomla 3, using an extension called MigrateMe Plus that helped me figure out which extensions were giving compatibility issues with J3 and needed to be removed/replaced.
With this working Joomla 3 test website, I have tried to upload images to the gallery again, and this time with success! No more issues or errors like before, the image upload works fine, the display is fine, and CB Activity shows it perfectly on the activity wall.
I don't know if it is because it's Joomla 3 that the issue resolved itself, or because of some or other extension or plugin that was giving issues and now isn't on there anymore. I'm just glad that it resolved itself lol. I still have to upgrade the live site, but seeing as that one is an almost exact copy, I don't think that the outcome there will be any different.