This feature was broken with, I believe, the 2.40 release of Blender and was not fixed in version 2.41. To duplicate the problem, follow these steps:
Open Blender
In the 3D window, select "View"
Select "Background Image" from the view menu
In the dialogue box that is given, press the "Use Background Image" button
Use the "Use Image" option and attempt to select an image from the file system.
The image will not appear as a background, nor will the selected file appear next to the "Use Image" button.
This functionaliy is also broken in the Texture buttons as well.
I have returned to version 2.37a and this functionality is working fine.
I am using WindowsXP Home Edition SP2.
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It's working for me, both in Blender 2.40 and 2.41. Using XP Home SP2, GeForce 7800GT
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I am using the intel chipset integrated into my motherboard, not a dedicated video card. I've recently upgraded my chipset, but I've not gone back to version 2.41 to retry it yet.
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I have the same problem on Mac OS X.
If I try it with Blender 2.37a it works. Any version after that and it doesn't.
I'm using Mac OS X 10.4.7 on a PowerBook.
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This is a generic request to test your bug report and see if it is still an issue in 2.5alpha2 if so please let me know by making a comment in this report ie 'also in 2.5alpha2' and I will add it to the 2.5 bug list.