Steve
I just tested it by uploading a test image of Ratbert and it worked just fine, so just to be sure:
Go to the Gallery
Select new image
Add a subject title
Click on the image manager hyperlink which should open a window, you may have a popup blocker running so if no window appears try holding down the ctrl key and then click the image manager link (on a Windows PC).
Assuming the window appears then click add file and browse to the image you wish to upload.
Click done adding files when you are finished
Then submit your post.
Russ