On the server, you need to create a writable (by your apache user) directory for the uploads and set that in the WordPress preferences.
"the uploads" meaning for example jpg files that I would upload with a blog post?
I can create a directory on my server (that is not my own apache server, but a hosted one) and I can probably find the corresponding setting in wordpress... but I guess the following issue should be resolved first.
Is this a 100% untampered WordPress 2.0 install?
In your install of WP is a xmlrpc.php file, set $xmlrpc_logging = 1; in that file and check what the XML-RPC log says when you post, i.e. if TM provides the post in two chunks. If it does, it is your WP install which needs fixing.
The xmlrpc.log looks like this. With "two chunks" - do you mean the part highlighted in red?
2006-10-17 23:05:49 Input: <?xml version="1.0" ?><methodCall><methodName>metaWeblog.editPost</methodName><params><param><value><string>50</string></value></param><param><value><string>Claus</string></value></param><param><value><string>Butterfly2010</string></value></param><param><value><struct><member><name>mt_allow_pings</name><value><string>open</string></value></member><member><name>mt_allow_comments</name><value><string>open</string></value></member><member><name>title</name><value><string>Blogging via TM</string></value></member><member><name>categories</name><value><array><data><value><string>water in the media</string></value></data></array></value></member><member><name>description</name><value><string>This is a blog entry written from TM
Holladrihia</string></value></member></struct></value></param><param><value><boolean>1</boolean></value></param></params></methodCall>
2006-10-17 23:05:49 Output: (MW) Edited ! ID: 50
2006-10-17 23:05:50 Input: <?xml version="1.0" ?><methodCall><methodName>metaWeblog.getPost</methodName><params><param><value><string>50</string></value></param><param><value><string>Claus</string></value></param><param><value><string>Butterfly2010</string></value></param></params></methodCall>
2006-10-17 23:06:38 Input: <?xml version="1.0" ?><methodCall><methodName>metaWeblog.editPost</methodName><params><param><value><string>50</string></value></param><param><value><string>Claus</string></value></param><param><value><string>Butterfly2010</string></value></param><param><value><struct><member><name>mt_allow_pings</name><value><string>open</string></value></member><member><name>mt_allow_comments</name><value><string>open</string></value></member><member><name>title</name><value><string>Blogging via TM</string></value></member><member><name>categories</name><value><array><data><value><string>water in the media</string></value></data></array></value></member><member><name>description</name><value><string>This is a blog entry written from TM
Holladrihia
</string></value></member><member><name>mt_text_more</name><value><string>
This now should be below the cut! It better damn be!</string></value></member></struct></value></param><param><value><boolean>1</boolean></value></param></params></methodCall>
2006-10-17 23:06:38 Output: (MW) Edited ! ID: 50
Thanks again,
Claus