Thanks, this fixed the same problem for me too.
In my case the problem was evident in IE8 but not in FF3.6
I have this problem too, but only since upgrading wordpress to version 2.5, the browse/upload photos section on the Post page worked fine before that.
It does it for me with new posts as well as when editing old posts.
Without this feature i’m unable (or don’t know how) to get text to wrap around my images. Using the [img:XXXXX,small] tags just results in images sitting above the paragraph which looks pretty yuck!
