I'm working on implementing a Gears solution. I figured out how to make a Gears uploader (surprisingly easy), and am reading the WP code to figure out how to integrate it nicely and provide fallbacks. I doubt anybody will get it in until 2.8, but I'll see what I can do. I can say that Gears uploading is *sweet*. Fast and clean.
If Flash is going to break things like this, then we can't rely on it. We have a patch that works in WordPress, but IMO the new SWFUpload is a bit of an ugly hack (no offense to the excellent work by the SWFUpload crew, I blame Adobe for this one entirely). Having to make a button in flash changes the look to where it no longer has the same look and feel as the browser's own buttons. Even the idea of making a button in HTML and covering it with a transparent Flash button strikes me as unbelievably stupid. Clever, but deranged. The idea is to be browser neutral here, people. That said, we'll probably leave Flash in as a fallback, if you don't have Gears.
Furthermore, it means that we have to load and initiate a flash application to start with, when I'd much rather load it when the click occurs.
Personally, I'm done with Flash for good because of this. This proves that it's simply not reliable enough for real-world usage. If they can't integrate with script properly, then there is no point in trying to use it for anything above the level of "toy". Flash is worth little more than a embedded video player now. It's kinda sad too, when they had such potential early on. So it's just too bad Adobe mucked it up and focused all development on the video aspects of it.
@mikechambers: I'm not interested in discussing a solution. We don't write Flash code for WordPress, we used other freely available code, which Adobe broke. This is not a matter of us fixing it, it's a matter of us picking up their fixes, or us using a better solution than Flash.