You cannot upload files using AJAX. You will have to move the FileUpload control outside of the UpdatePanel as it interferes with the file upload attempting to send the file in the AJAX request which is not possible. When you use Uploadify, it's up to you to write the javascript that will upload the file to the server, not rely on UpdatePanel.
On the server you will need to have a generic ASHX handler or a dedicated ASPX page that will receive the file upload along with any additional parameters that you might need.
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