The closest thing we have to an FAQ is http://p2theme.com/ -- documentation for themes is area that we know needs work. :)
The Status, Blog Post, Quote, and Link are different types of posts. When you click the various types you'll see how the input fields change; Link is designed to share a link to something interesting. They are also styled a bit differently: Status won't show the post title, whereas Blog Post does. Quote styles the post a bit differently. Now that I look at it, Link acts much like Status.
Here is a site you can play with: http://p2demo.wordpress.com/ if you don't want to set up your own.
I just tried an image upload there (using the steps I detailed earlier), and it worked. If you get a blank page, that could be a browser bug -- could you tell us what browser version you use?
Overall P2 is a great theme, and very nice for quick updates. As with all our themes, we will continue to improve it and make it better... so thanks for the feedback.