This sounds like a javascript problem.  I just tried enabling embed on a fresh 1.7.4 installation and it's working for me.  Have you changed any of the files?  If not, some might have been corrupted in transfer.  Try copying everything over again and see if that helps.

Also, embed isn't required to upload files. You can use the files plugin for uploads too.

The Files plug-in doesn't work either.  I will download elgg again and try that.