Below is the source I'm using to control my path settings.  I just downloaded and updated with the 5.1 version of CE.  My images work fine.  My media gallery and image gallery folder is registering fine.  Any ideas?

    If Not Page.IsPostBack Then
        Editor1.SecurityPolicyFile  = "guest.config"
        Editor1.Setting("security:ImageGalleryPath")= "~/blog/images"
        Editor1.Setting("security:MediaGalleryPath")= "~/blog/images"
        Editor1.Setting("security:FlashGalleryPath")= "~/blog/images"
        Editor1.Setting("security:FilesGallaryPath")= "~/blog/images"
        Editor1.ShowDecreaseButton = False
        Editor1.ShowEnlargeButton = False
    End If