Same problem here.
Virgin 2.51 installation both on a local server and online shared server.
I have tried with MSIE 7, Opera and Firefox all with the same results. Image uploads and when one goes to insert the image into the article the “lightbox” goes blank and sits there. The image does not insert though the box can be closed.
There is obviously an Ajax issue here. I have not had time to look at code. I am versed in PHP, Javascript, C++, C#, VB, ASP.NET on and on.
I am surprised this was not caught before release but it happens.
The work around is simple enough.
Upload the image using the media upload. Copy the resultant URL to your clipboard (highlight it and do a CTRL-C or right click “copy”. Exit out of the media uploader. In the editor click the Insert Picture icon, paste the URL into it.