There is a new security "feature" in IE 8 that hides the real path of the selected file from JavaScript calls (it returns c:\fakepath). This seems to only be activated for "Internet" servers ... not Local intranet servers...
See here for more information about C:\fakepath
Edit
Also, you should consider removing this line of code (you don't need it in your script)...
reader.readAsDataURL(input.files[0]);