That is the way to Add folders of images to your Gallery.
Please Edit your Question, then add Admin Access in the Hidden Information section so I can test this for you.

Update:
I created 2 Test Galleries and added images to the Frontpage Gallery (FF and IE ) successfully . Can you clear all Browser caches and test with another PC if possible ?

YOOgards

Yes, I can also say that the "Add Photo" button in the Frontpage Gallery Slideshow of the widget kit is not working. I've also tried disabling my facebook plugin but problem persists. I even disabled all the plugins and still doesn't work. This is on Wordpress 3.4 with all the latest theme and widget updates. Thank you for looking into this.

Edited & updated... details added
Thanks Mustaq

I had a similar problem. Discovered there was a conflict with the plugin called : System - Facebook Like vombiefacebooklike .
I unpublished it and now I can see the folders and add them.

I hope this helps a few others.

******Add to Photo Gallery' button (below the folders on the right) doesn't work.*****

I have the same problem.
Joomla 1.5.22 - updated to 1.5.26
Widgetkit 1.1.1

Tested on 2 different hosting services, and on the local computer.
The rights to all folders 755 or 777 (do so and so)
In Joomla path to the folder with pictures of the standard.

Please help me.

Dear friends.
Please help me.

P.S.
How do I get support if no one answers here?
Are there other ways to contact you?

Translated by Google Translator

Also seeing this problem on our site here. Tried disabling Social Media plugins, but still seeing the same problem with Widgetkit.

I am having the same problem with wordpress