Try Selenium 2.0b1. It has different core than the first version. It should support popup dialogs according to documentation:
Popup Dialogs
Starting with Selenium 2.0 beta 1, there is built in support for handling popup dialog boxes. After you’ve triggered and action that would open a popup, you can access the alert with the following:
Java
Alert alert = driver.switchTo().alert();
Ruby
driver.switch_to.alert
This will return the currently open alert object. With this object you can now accept, dismiss, read it’s contents or even type into a prompt. This interface works equally well on alerts, confirms, prompts. Refer to the JavaDocs for more information.