Thread:Extension talk:WYSIWYG/Can't link to file which is uploaded/reply

The most difficult part for me was to get file upload work (I assume this works ok for you). I do not recall that there were problems with Image-dialog and link creation on page after Image dialog of wysiwyg was fixed (in #6 bundle of Download section).

Do not use enable compatibility settings in case you are using IE ...have you tired it with FireFox to isolate browser issues with wysiwyg?

These pages may be helpful for you:
 * Manual:Configuring_file_uploads
 * Manual:Image_administration

Below are settings of my LocalSettings.php (ImageMagick is optional), ...they are mostly related to image upload, not Image -dialog itself: