... no, don't create a directory, lol. You need to use the images directory which is already there. You could create the subdirectory images/sockpuppet, as long as it's in that images directory.
Remember the images directory is set up to mirror friendcodes.com. You can right-click an image on the dev site and look at its properties and you will find the url is linked to friendcodes.com instead of dev.friendcodes.com.
where are you uploading the images? Make sure when it's uploaded that you check the url (should be able to right click the file and see the location). It shouldn't actually be on the dev site, because the images directory is mirrored. So when you go to the dev ftp, go to images, upload an image there, the url should actually be friendcodes.com/images/image.whatever instead of dev.friendcodes.com/images/image.whatever.
Unless of course Corey has changed it to not mirror images from the live site.