P2 Problems with Media

I’ve setup a blog for my friend using the P2 theme, and she seems to be having trouble with the media side of things.

She is saying that the URL when she mouses over the Add Image etc links looks like this:
http://mystyfi.com/wordpress/wordpress/wp-admin/media-upload.php?p2-upload=true&post_id=0&type=image&TB_iframe=true
and when she clicks the link, the frame pops up, but not the upload form, rather just the home page.

Not sure if it has something to do with 2.9 RC1, but I had the same problem with 2.8.6 as well. I tempted to think it is a theme problem rather than anything else.