The release notes for V1.12 says:
Firmware: 1.12b1608 - Date: 07/23/2012
•[New Feature] Update mydlink agent to 2.0.15-B11
•[New Feature] Add SD card warning message
•[New Feature] Add mydlink agent version information
•[New Feature] Fine tune NTP failure when network is not accessible at boot time
•[New Feature] Support Direct View Web Pages using following URL to get live video: http://camera_ip/vaview.htm (for Windows IE) and http://camera_ip/vjview.htm (for non-Windows IE)
It appears that our problem is related to the second line: "Add SD card warning message". I guess there is a firmware bug in this release that in reality makes usage of the SD card useless!

Kim