I think this was addressed in 1.1.1
Wrong ,
even in 1.1.2 its there man .We just get a thumbnail
Yes, I use 1.1.2 and have the same problem with IE9, for any html block.
My way to solve this problem: System--Setting--Appearance--
Product List Width & Product List Height: temporarily change to the size of the picture you're going to upload.
By doing this, when you edit the block and insert picture, you may still see a thumbnail. Choose Cancel and insert picture again, now you can find your picture in resource liberary, choose the picture and done!
Don't forget to change back Product List Width & Product List Height.
Hope this problem can be really resolved in a future version.