I would think the notice (not error) for undefined index is a result of squirrel mail not being set to generate a proper error message based on a successful file upload. It's expecting the upload to go through and the variable to be set as a result.
This, to me, seems like the file isn't being uploaded at all. Restrictive settings on /tmp or incorrectly defined tmp dir for php may be to blame here. Try uploading a file via a small custom upload module and see if you can copy that to another location. Or; simply echo uploaded file properties before unlinking.... just to make sure this is a squirrel mail prob.
p.s: What version of squirrel mail is this?
-m.