The Web Development Blog has a recent tutorial posted talking about a free option for the TinyMCE tool to work with uploading images.

TinyMCE is a great online WYSIWYG editor which is used for a lot of projects, for example this Wordpress blog application (the content backend). [...] Sometimes the Image manager too looks too big for some projects and than is the following (free) solution an option. You can download your copy from the TinyMCE website.

He shows how to include the plugin (so the resulting TinyMCE instance can include it) and the PHP code to do the handling for the upload, based on this upload class. The end result is a simple, integrated feature that lets you upload a few different kinds of images.