Do you have the images folder in your site root, if so what do you have in this folder? If you are getting to the files folder and can see the contents there then you may need to prefix this images folder with the value of your files folder. This is what I would try if I were having a problem like this, adjusting both the files and images paths to match the exact structure that you have for your site.
You can try putting in the full path with a slash in front of it like this:
/images/ or like this powerCMS%20folder/images/
If you can get these paths to match your site structure and the folders exist in your site then you should be able to upload and select images from them without problem. Let us know what you try and the result that you get.
