I've had similar problems with the latest FCKeditor and ended up moving back to an older version.

My issue was complicated as they changed the name of the install directory and the userfiles and images directories a while back. I decided to change these back in the config and connector files as I have 25 sites with those locations hardcoded. I just couldn't get it to work. A developer on the support forum had a look at the config files and couldn't figure it out.

I also found that it chokes on pasted HTML and cleaned up Word code a lot of the time, making formatting a pain.

I'm looking for an alternative that supports image upload for future projects, if anybody can recommend one?