Make sure the path is correct and that the directory is writeable by PHP.
Most likely, it's one of those two things, but as to the PHP configuration:
1. If PHP is running in Safe Mode, you could be running into an open_basedir restriction, so you would either need to move the attachment directory to a non-restricted area or turn off Safe Mode (FYI: Safe Mode is now deprecated and will be removed entirely from PHP6).
2. If it's not, all you need is to have file_uploads=on and max_file_size set to something decent in your php.ini file - the defaults should be fine, so I can't imagine this being the issue unless someone has specifically disabled them.