Thanks to Eric in Support, here is the answer:
It is important to use both the httpModule and the web.server module in the web config.
In the system.web section
<httpModules>
<add name="DotNetGallery.UploadModule" type="DotNetGallery.UploadModule,DotNetGallery" />
</httpModules>
In the system.webserver section
<modules>
<add name="DotNetGallery.UploadModule" type="DotNetGallery.UploadModule,DotNetGallery"/>
</modules>
This resolved the issue with running the control in an IIS 7.0 envioronment.
Thanks Eric!
Matt