Does HTML5 allow you to interact with local client files from within a browser

Chrome 6 also will support the File API

No, not directly at least. However, you have a number of choices here.

Currently your best choices are:

• Drag and drop files from desktop, see a tutorial. (Link disabled for malware/phishing)
• Use input type file.
  • Read the contents with the File API or submit the form. Read more on Mozilla Developer Center about reading the file dynamically.
  • You can specify multiple attribute to read and open multiple files at once without having to have separate fields.
  • You can have an invisible input and "trigger a click" on it to open the file open dialog. See the previous Mozilla Developer Center link for details.
• Use the FileSystem API which allows you to create, delete, read, modify files on the file system. Note: you get a sandboxed directory to work with, you can't access the whole system just like that.
• Use Java with signed applets to access the whole file system. This requires the user to accept the signature.