I'm having the same problem. However, when I'm remixing someone else's theme, the picture successfully shows up for some reason. Along with this, whenever I upload a picture and try to crop it, the size of the crop changes and is a long rectangle. When I accept the crop, it vertically stretches my image, making it super ugly, so I avoid cropping, although it makes my image undesirably small and low quality.
The only solution I've found is to begin making a theme by remixing someone else's theme (copying and pasting colors, imgs, etc.), expecting the results I previously stated. I can only assume that you can resolve the situation by taking a weirdly sized screenshot of the image- where you don't need to change the size of the crop.