Here's a debugging idea:
on your XAMPP server, navigate to the C:\xampp\FileZillaFTP folder, start the 'File Zilla Server Interface.exe', Edit Settings and turn on logging.
I have tested, this works...
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> 257 Directory created successfully
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> CWD /sites/ml.xxxxxxxxxxxx/images
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> 250 CWD successful. "/sites/ml.xxxxxxxxxxxx/images" is current directory.
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> PWD
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> 257 "/sites/ml.xxxxxxxxxxxx/images" is current directory.
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> TYPE I
(000007) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> 200 Type set to I
(000008) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> CWD /sites/ml.xxxxxxxxxxxx/images
(000008) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> 250 CWD successful. "/sites/ml.xxxxxxxxxxxx/images" is current directory.
(000008) 6/14/2010 16:43:59 PM - jonb (209.xx.68.66)> PWD
[no errors as my FTP is working perfecto ATM]
Maybe this will help you get to the bottom of the problem.
Good Luck