This depends on your service providor, i had to make them 777 too. You can't do anything about it. Just give 777 to the particular folder and not the one above it and you should be safe.
Yes you need the multipart thing to upload page.
As for the problem with the insert page. I am assuming that you just have the recordset on that page and no hidden file as in the update.php. Check that Insert Behavior at the database column where you add the filename uses the DFPUpload recordset and pointing to the Server File Name and not any FORM element.
The reason you get that default file is probably cause at the Insert Behavior you have the FILE FIELd binded to it, instead of BINDING the Upload Behaviors Recordset/Server File Name.
Please tell me if you understood it and if you need more help.
Sorry for delay i am currently over my head with a project.