If you are getting a 406 error when trying to insert an image into a wordpress post, it is probably something to do with mod_security. Mod_security is an apache module that looks for matching patterns / content-types in webpage requests (like the POST needed to insert an image) and will throw a 406 error, or perhaps a 501 error, when it thinks an attack is being made.
If you run your own server, then disable mod_security. If you are on a hosted server, ask your hosting company to disable mod_security for your account (many of them will do this, bu they generally have it enabled by default).
