Instructions for image uploading are here > http://en.support.wordpress.com/images/
Here are more details about the options for uploading images:
http://wpbtips.wordpress.com/2009/04/26/images-the-three-link-options/
For troubleshooting images here > http://en.support.wordpress.com/images/troubleshooting-images/

Instead I recommend that you ONLY log-in directly you your own blog and ONLY create posts and edit them here > Dashboard > Posts > All Posts > Add New

If you are not running one of the browsers and versions listed at http://browsehappy.com/ please try upgrading or switching first.

Note: If you are using an IE9 browser in compatibility mode that makes it render as IE7 and IE7 is not supported. To disable see > http://www.sevenforums.com/tutorials/1196-internet-explorer-compatibility-view-turn-off.html

If you are, please do these four things:

1. Try clearing your browser’s cache http://www.google.com/support/accounts/bin/answer.py?hl=en&answer=32050

2. Make sure that you have third-party cookies enabled http://en.support.wordpress.com/third-party-cookies/

3. Try with all browser extensions or add-ons temporarily disabled.

4. Try enabling HTTPS: http://en.support.wordpress.com/https/

If you are not successful let us know which browser (and version of it) you’re using and post any error reports you get.

Any clues?

Thank you