I'm using the web-based wordpress, and so far I've tried it on two different computers and using two different browsers - same issue.
I have not installed anything new/different... seems to be glitch with the bookmarklet.
Go to any site, hit PRESS THIS, try to use the ADD (Image) feature, and nothing happens.
It works fine up until you select which image you want (from the standard mini square thumbnails) and then it opens the image, but the formatting looks all wrong, and when you click INSERT IMAGE, nothing happens and no code/HTML has actually been added to the post.
Test it out and see what happens, or refer it to someone that might be able to do so.