Not sure about the PHP version.
You might try to replace the file class/xoopsform/form.php with the one from XOOPS 2.0.14.

That finally worked McDonald, thanks. A note should be made about this. I guess later I might run into problems since I've switched to an earlier file. Right now I'm just happy to have a WYSIWYG editor :)

The image upload tool still does not display though. I put in all the plugins I found and none has that. However I am able to get files from the ImageManager. If you find out where that plugin is (the one you placed the example link) then please let me know.

Thanks again!

The form.php file of XOOPS 2.0.15 doesn't work correctly. This is a known issue already.

To have iManager working correctly you have to set the correct path to the upload folder in the Preferences.
If you have XOOPS installed in a sub-directory than this should be set in the Preferences also.
Also should a couple of folders have the correct CHMOD setting.
See for this the manual or click the Online Help tab.
There are 2 image managers for tinyeditor, one is the XOOPS ImageManager and the other is iManager. iBrowser is actually a lite version of iManager.
The patch for iManager and iBrowser can be downloaded here.
There's also a patch for XOOPS ImageManager here.
After applying the patches update tinyeditor in the Modules administration section.

Once you have iManager running, go to Insert. In this window you see left the files in your upload folder and at the right a preview window. Under this preview window are a few small icons. The one with the green arrow is for uploading images.

Good luck!

I tried this with Koivi (which is installed in class/wysiwyg). I can get Koivi to replace the DHTML editor by changing the array as instructed

but it will not populate the textarea with the block content when you try to edit a block. Normally, you invoke the Koivi class with params like:

Unfortunately, the settings in formdhtmltextarea.php that pull the content into the text area don't appear to work with Koivi.