I assume that you have Silverlight 4 (4.0.51204.0) version installed, right?
Look at http://www.microsoft.com/getsilverlight/Get-Started/Install/Default.aspx, tab "System Requirements" and you will see that there is no support for Windows Server 2008 R2 , FF 3+
So your option is either to upload images with IE 8 or install previous version of Silverlight 4 (4.0.50917.0).
1) Do you experience the problem with all browsers?
2) Can you check if you can upload files on the demo site and let us know about the result?