Add Image in blog post not working

Hello,

I have wpmu 2.7 installed.

I noticed when I'm editing or creating a post, and I click on the little media icons above the editing window to add a new image, the new image window opens up in the same window as the current editing window. That is, it replaces the contents with the add image dialog (In regular WP its a pop-up dialog).

Since it replaces the current page, the insert image doesnt work since it doesnt know which post I'm referring to.

Anybody else experience this?