From the add new post page, I clicked the Add an Image link just above the text entry block. The add an image screen comes up. I click "Select Files" and get the multi-file upload box to choose files from my PC. when I click "open", the "crunching..." bar comes up and when it reaches the end, I'm shown the WordPress Login screen. I viewed the source of the page and there is only one form attribute and it's related to uploading the image, not logging in to the blog.
I shot a video of the process if you'd like to see what it's doing.
I'm using Firefox 3.0.4 w/Adobe Flash player 10
I have already cleared my cookies and restarted the browser several times trying to solve.
Any other suggestions welcome.