You should make sure to update your login values so that others don't come in and alter things on this page.
I can see what you are talking about in regards to the upload tab and getting the image to show on the server when going through the regular image upload. Since you are able to upload the images the other way this tells me that there may be a permissions issue or a problem with the directory.
By default the files that a user uploads should go to your userfiles/image/ directory. If this folder does not exist then you can have problems uploading to it. You should make sure that you have this folder inside of userfiles and that there are permissions to read and write to this location. I think if you update this you will be able to add in images like normal.