The truth is AJAX cannot upload images, it wont happen, it can't do it, stop your search and take a deep breathe as you begin to accept it!

But never fear... take a look at the 3 options below, without looking at the source code you probably wouldn't relize its not AJAX. Well the cat is out of the bag its not! It actually uses the ugly nasty relics from the 90's, IFRAMES, urghhh. I know. Well you're thinking about it do a view source, you wont see it there. The JavaScript adds it in a hidden state and then when it is done with the dirty little thing it removes it. Pretty slick, huh.

OK so play around with it send me some feedback and one we get it rockin and rolling I will release the full source code under a creative commons license! Oh and before I forget, if any of this looks familiar it should there are a few of these out there, but none were exactly what I wanted.

Dont worry I will give credit where credit is due though once the source code is released as a download.

Standard Use
 

Sleeker more web 2.0 onChange Use
 
Unobstrusive (Falls back to a standard form)