I have been trying to use the image upload feature in WP 1.5. There is a bug, which will be fixed one day soon no doubt, but there is also a user interface problem as I see it.
When you choose to create a thumbnail image, the code generated is not relative to the thumbnail.
Took me a very long time to work out why my image was not shrinking. Turns out all I ad to do was add "thumb_" to the beginning of the quoted file in the generated code.
Can it be re-written so that when you choose to create a thumbnail, the code generated includes "thumb_" before the file you are trying to point to? That way you can do a true cut and paste.