I ran into the same problem. The latest version of SWFUpload works, and it does this by transparently overlaying swf on top of the "select files" button.
It will work. The reason Flash 10 broke the old one is because (for security reasons) it forces the end user to initiate the process with a click, rather than letting scripts call it.
Instead of using all the javascript swfupload, we really rewrote this entire library (and cut the javascript code to about the 10th original).
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