Finally figured out my Selenium IDE problem. I run an apple Macintosh (OSX), with Firefox. When starting up the Selenium IDE I got a very nice toolbar without anything underneath it, needless to say not very useful:
After trying the usual suspects, and even upgrading to Firefox 3.5 I was still no closer.
Today I found the answer quite by accident, it was the nice minimalistic theme I use little fox!
Reverting back to the default theme and viola all is working. I googled around a bit and it seems this is not a problem just with little fox. I will now get back to playing with what seems to be a very interesting open source tool; sadly without little fox.