Can you post Paw's Headers and Content here?

The first thing is wrong that you're posting to http://photos.mysite.com/api/1/upload/ in your code but to the

http://photos.mysite.com/api/1/upload/?key
+=xxxx&format=json&source=http%3A%2F%2Fphotos.mysite.com%2F128.jpg
[download]

from the Paw...

But the most interesting thing will be POST content from the Paw...