Looks like you’re putting the site title in the top pallet.
If you want to put an image logo in the top pallet, (Like you have the text masthead now), you’ll need to use PHPlugins.
Otherwise, for regular mastheads:
Unlink the masthead in your page template under the Masthead tab:
Have you enabled a graphic masthead logo in the page template, also in the Masthead tab?
If you’ve done all this and you can’t apply an image, then how are you uploading your masthead logo?
Are you using a jpg or png?
Matt has a blog post all about the Masthead that may help: