FIXED: File upload support (for images, video only) is available as of iOS 6. It lets you either select an existing photo or video, or you can choose to take one right then. Hopefully, iOS will eventually support selection of other file types, but this is good enough to be considered fixed in my book.
Mobile Safari has never allowed you to select a file to upload to a web site. That's broken. Here's how it looks today (under iOS 4.3.1, on iPad):
I know iPhone and iPad don't have a traditional file system where the user can browse for documents that are stored on it. But at the very least, such a button should let you select from your photo/video library.
But eventually, it should be possible to select from any document that a user creates on their iPhone or iPad. A file upload field should specify a list of document types that it can accept. HTML5 includes an "accept" attribute for this very purpose (although I'm not sure how well it is supported yet). For Mobile Safari, this information could help identify the files that are appropriate to pick from. iOS applications can register the document types that they produce. Safari could then allow the user to select the application, then the file within that application that they want to upload.
Another way to do this is to use a UI similar to the Spotlight search interface on iOS. Basically, you would simply search for the document you want. Any resulting matches would be displayed and grouped by application.
I'm hopeful that we're near to some solution to this particular problem. In previous versions of iOS, this field has been completely hidden. So I'm at least hopeful that since it's now visible but disabled we're inching toward a functional file upload feature.