What version of Moodle are you using? (It's always a good idea to include that in forum posts about problems)
When I click the IMAGE button in Moodle 1.7 (with both
IE & FF) I get a much richer dialog box which includes near the bottom [Browse] [Upload] buttons. I think I had the same in both 1.5.(4?) and 1.6.
Could it be that the dialog box hadn't finished loading? (Maybe you happened to hit ESC).