I was having problems with product images not getting saved. They would upload and appear fine in the preview. But when submitting, they disappeared. When I right clicked on properties in the preview, I noticed they were being saved in http://www.mydomain.com/files/ ...But that directory didn't exist when viewing an ftp listing. That was weird. So, I created a directory called files, chmod'ed it for write permission, and now everything works. I noticed Drupal created a bunch of subdirectories under /files/ .
Thought I'd post this in case someone else was having problems with product images being saved.