In the latest WordPress 3.5 go to Media > edit the image and you will see the URL listed over to the right... Click here for screenshot
Just copy the URL from there and paste into the relevant field in the plugin.
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This plugin is really designed as a way to showcase music most appropriate for bands, artist and people wanting to sell or showcase their own music in a nice looking player on a page. If you're after something that does autoplay - more like background music while the user browses then this is probably not a suitable solution.
Hope this helps