I have checked and double checked my settings. I don't see anything wrong in them.
I have established a file upload location and verified it is working correctly with a Channel Images field. When I set the same location for the images in the Editor image upload location it is not working.
I can click the 'Image' button in the toolbar and the insert window opens. I can then either drag/drop or click insert and select the image I would like to insert. The title shows up and appears to be ready to insert, but the window then closes and drops a blank space in the copy section. When you look at the source, you can see an empty image 'figure' block.
See images for visual.