In working with Dani Chankhour from support today, the fix to this problem is in webassist/kfm/filebrowser.js
Change line 91 from:
var kfm_url="webassist/kfm/?theme=webassist_v2";
to
var kfm_url="webassist/kfm/index.php?theme=webassist_v2";
This issue will show up on any server that allows index views. Also the fix that I posted for the 404 error on the select_none.png file will not work if your web site is in a subdirectory.