Wordpress 2.5 was officially released just a month ago. Most of the bloggers upgraded to this new version of Wordpress. There are some new features in this fresh version including Flash based Media uploader.
Unfortunately for some however, it doesn’t work anticipated due to server configuration and broken flash files on the user computer.

The same problem faced by me when I upgraded to this new version so, I Googled and found a handy plugin named No Flash Uploader.
No Flash Uploader disables the new Flash based uploader and allows the normal classic uploader to work.
I personally using this plugin and found it yet useful and Good job done by Dion Hulse who is the developer of this plugin.
Also take a look on the Wordpress support post regarding to this topic to find out what may be causing this uploader to fail.