WordPress on IIS works except for image upload widget: Win 10 Pro

I installed latest wordpress on Windows 10 pro. When I upload images, it gives a generic error (An error occurred in the upload. Please try again later), momentarily flashes the image and vanishes. It does not show the image.

When I go to the upload folder it has the image there. Also, if I use the html tag on the blog, it shows the image alright. I tried to give everyone permission to the wp-content and the temporary folder but of no avail.

I looks like the upload widget is causing the issue. Any ideas where to look for?