Hmmm it’s very strange, I’m unable to replicate it locally. I managed to set the logo by manually pasting in the url for the file and saving.
I would suggest downloading a fresh copy of the theme, in case the original is somehow corrupted and replacing that restaurant theme folder via ftp. If that doesn’t resolve the issue, I’d say try downgrading to a previous version of WordPress, as this theme hasn’t been tested with the latest release.
Do you have any form of caching on the site? As changes made in the style.css don’t seem to take affect? I’m wondering if your hosting provider uses some form of cloud service?