This error usually means that the FileUpTempDir registry key was set incorrectly during the FileUp installation process. This registry key controls where FileUp caches the files during the upload, before they are saved to the final destination. By default, the FileUp installer sets this key to the system temp directory, usually something like C:\Windows\Temp. Occasionally for some reason the %SystemRoot% environment variable doesn't get translated into the physical path.
The solution is to change this registry setting to point to the correct physical path of your system temp directory, or any other location where you would like FileUpEE to cache the uploads.