How to solve your Windows Live image uploader problem
When I first tried to upload images I got the "You need to install the Image Uploader control in order to upload images. This is a one-time installation and it may take a few minutes. If you see a security warning, confirm that you want to install this software" dialog and nothing would happen. My netmeter said it had downloaded about 260KB and then nothing. I waited and still nothing. So I took a look at the page's html code and added the sources into my trusted sites list. Still nothing. I changed the security setting for my trusted sites and still nothing. I removed Googles Toolbar and again nothing.
I knew that this was probably an ActiveX problem so I googled "which april update patch disabled activex" and found out that Microsoft has a court case involving how Internet Explorer handles ActiveX and one of their updates has changed the way IE deals with ActiveX until the case is resolved. But it didn't tell me which update did it to my Windows98SE IE6 system. The html code told me that the image uploader page was trying to download and install MsnPUpld.cab so I downloaded it manually and tried to install it manually. That didn't work and almost broke my system until I rolled it back, using scanreg/restore, to the previous registry.
There was only one thing to do. I had to uninstall the updates, one at a time, until I found the one that caused it. Luckily I tried the "Cumulative Security Update for Internet Explorer 6 Service Pack 1 (KB912812)" first and bingo I got back my ActiveX ability. Now I can upload images to my Windows Live website and get those store coupons I tried to get last week but couldn't.
So if you are using W98SE with IE6 just uninstall "Cumulative Security Update for Internet Explorer 6 Service Pack 1 (KB912812)" using the control panel Add/Remove Programs and click "Microsoft Internet Explorer 6 SP1 and Internet Tools", click "Add/Remove" and click "Restore the previous Windows Configuration". You will be rolled back to IE5.5. Go to Windows Live and install Image Uploader and upload your images. You can then use Windows Update to reinstall "Cumulative Security Update for Internet Explorer 6 Service Pack 1 (KB912812)", which will return you to IE6.0.2800.1106 update version SP1, and you will still be able to upload images,whenever you want, however you won't be able to install other ActiveX helpers from any other website. If you Don't reinstall IE6 then make sure you set your IE security to disable ActiveX in the restricted sites zone, prompt in the internet sites zone and enabled in the trusted sites zone and don't reinstall "Cumulative Security Update for Internet Explorer 6 Service Pack 1 (KB912812)" until August when the court case will be settled.
Good luck.