I have Java working with Firefox on a Windows 7 machine and it uploads images through the Auctiva bulk image uploader. I just tried it. My Java is set to automatically update when Oracle/Sun, the company that produces Java, makes an update.
That makes me pretty sure that the problem with Java with Firefox is due to something going on on your local machine.
A quick way to try to fix a problem with Java is to reinstall the Java software rather than update it. I have experienced occasions where an update to Java didn't process properly, leaving me with one version and part of another installed. Needless to say, it didn't work so good after that.
So to fix it I reinstalled it from the ground up. Cleans out any prior install, and gives you a fresh copy of the Java the software.
If you want to try that, you can do a reinstall of Java as follows:
(These instructions are for Windows 7...32 bit vs 64 bit Win 7 doesn't make a difference in this case...)
Navigate to Control Panel->All Control Panel Items-> Programs and Features. You will see the version of Java you are running (as an example, the version of Java that I have on my machine is Java 6 Update 21 version 6.0.210.).
Now highlight that line, right click and select 'uninstall'.
Once that is done, then use your browser to go to the java download site, http://www.java.com/en/download/index.jsp and download Java to your desktop, then stop your browser, click the Java file you just downloaded to your desktop and it will reinstall Java.
Now restart Firefox and try the image uploader again. You may get a 'digital signature error panel...you can disregard that by clicking 'run' I'm not sure why that is appearing, but its not a worry in this case.
Hope that helps.