I had the same problem , even before upgrading to wordpress 3.4.2…very frustating
This worked for me
I desactivated all esential plugins and then activated one by one…”404 Redirected” seems to cause problems
Also in Gallery Options pannel/Gallery/Show ImageBrowser( The gallery will open the ImageBrowser instead the effect.) I have deselected/click refresh/reselected/click refresh
I hope this helps
