Don't have an elegant solution at this point but wanted to share my findings for the future reference of others who encounter this problem. The source of the problem was 2 overriden php values in an .htaccess file. I had simply added these 2 values to increase the filesize limit for file uploads from the default 8MB to something larger -- I observed that simply having these 2 values in the htaccess file at all, whether larger or smaller than the default, caused the issue.
php_value post_max_size xxMB
php_value upload_max_filesize xxMB
I added additional variables to hopefully raise the limits for all the suhosin.post.xxx/suhosin.upload.xxx vars but these didn't have any effect with this problem unfortunately.
In summary, I can't really explain the "why" here, but have identified the root cause. My feeling is that this is ultimately a suhosin/htaccess issue, but unfortunately one that I wasn't able to resolve other than to remove the 2 php overridden values above.
Hope this helps someone in the future as I killed a handful of hours figuring this out. Thanks to all who took the time to help me with this (MrMage, Andrew)