I have the same issue. When I click on the "Browse" button, the error message I receive is "Unable to detect an image browser." In addition, under Options > Document Handling, File Management is grayed out and I cannot select anything. I have CS3 Web Premier installed, and I assumed Bridge would be my image browser by default.
I also attempted to paste the URL of the image file directly into the URL field in the Objects palette, but the image appears as a placeholder instead.