This is because it has not been upgraded to WP2.5 and tinyMCE 3.x
I tried to fix it myself, but I just don’t understand PHP and the wordpress system and tinyMCE well enough — I just made a mess.
You can work around it a little using the code version (i.e. disable the visual editor) However that is clunky and sucks. I have pretty much stopped using photopress. Also, the author is not keeping the latest version on this site. I could have sworn I posted a message to his blog asking about the likely hood of an upgrade for wp 2.5, but it looks like my message has disapeered rather than be responded to. I don’t blame the guy, mind you — he is providing it for free afterall.