class.upload.php is a powerful and mature PHP class to manage uploaded files, and manipulate images in many ways. The script is available under a GPL license.
more info about the class
Basically, image processing happens only is $this->file_is_image is true, which happens only if the MIME type is in $this->image_supported.
Since Flash sets the MIME to be application/octet-stream, it is not recognized as an image format, thus disabling the image processing.
I guess I will add a new setting, something like $handle->is_flash that will disregard some MIME type information in order to allow image processing.
Could one of you send me some implementation of a Flash uploader with the upload class, that I can set up here, in order to test it?