In the window pane displaying your local files, navigate to where you put the Joomla files. In this case, since we put the files on the Desktop and were logged in as user1, the files are located at

C:\Documents and Settings\User1\Desktop\Joomla_1.0.8-Stable-Full_Package\

By double clicking on the appropriate folders, we've navigated to the Joomla package folder.

open full sized image