RESOLVED
Thanks Patrick. Problem solved and a warning to others who might find themselves in the same situation:
1) The problem was baffling because both my MODx and PHP.ini parameters were set to allow file uploads up to 2MB
2) MODx support was engaged and they found the following "mod_fcgid: HTTP request length 131388 (so far) exceeds MaxRequestLen (131072)"
3) Searching various forums I found the resolution here:
http://forum.parallels.com/showthread.php?112735-MaxRequestLen-Issue
4) So be aware if your hosting provider suddenly puts you on a platform running PHP in fast CGI mode; often even the support people will be clueless to this and tell you just to look in PHP.ini
5) I had to log into my server admin panel as ROOT to actually get to the configuration file in the following path /etc/httpd/conf.d/fcgid.conf
6) Once there I edited the file to add the following directive before the </IfModule> line which allows uploads up to 10meg - FcgidMaxRequestLen 1073741824
7) I also discovered the problem occurred because my host uses Plesk 10.3.1 server management panel in their current standard virtual server config; if they automatically upgrade this software the problem could happen again as the fcgid.conf file could be overwritten; apparently Plesk 10.4.4 and up addresses this issue.
Good luck to anyone else with this problem and hope it helps. The hosting provider support was pretty clueless.