I have all my photos on my computer in iPhoto... when I want to upload photos into a listing I select (from inside the listing I am building) the iPhoto files. Then I find the pictures I want and select them and import them. It's pretty easy.  When you are in the window for selecting pics I always use the Standard uploader because it lets you select more than one picture at a time. If it doesn't work for you then try the Basic uploader but it's slow because you can only get one at a time. I seldom use it but now and again for some reason a picture won't upload so that's when I try it as a last resort. I hope this helps!

I think that pictures can be in any sort of file on your computer as long as you can find them to upload them... using iPhoto gives you the opportunity to edit the photos first, crop them and lighten them or whatever looks best.