Indeed, if you use mod_php with multiple distrusting sites, you should use the FTP layer. HikaShop supports it. That's why you get that error when it is activated which means that between your folder access rights, your tmp folder access rights and the FTP user permissions, the FTP user cannot move the uploaded files from your tmp folder to the safe folder.
Ah, so you are suggesting the fault might be in my configuration. I don't think so, but I prefer that to thinking your solution to fix the bug was to disable the feature.
I will investigate it some more. I already tried the usual things that challenge joomla components from using ftp, such as some need an absolute path to the tmp folder, or wanting something like ./htdocs3 or whatever in the ftp config instead of just htdocs3 (the /htdocs3 suggested by "auto find" rarely works). I will let you know if I find anything useful.
Thank you for all you do -- this software really is some of the best I ever used with Joomla -- by far. So I hope I don't sound critical.
-Henry