Okay, i just saw a reference to Update Panel in your page code, but your upload control is declared outside of it. Use breakpoints and run your page in debug mode. Set break points inside of the first if statement and see what you're getting in FileUpload.PostedFile. Check for any internal errors and property values.

Also, don't use system.io to save the file. You can do so with FileUpload.PostedFile.SaveAs();