File based or image based No technical reason I can think of that the File-Level Restore (FLR) dialog couldn't default to the original folder (if it still exists). I will add this as a customer request.
The FLR is designed for quick restores of a file or folder and not for more detailed restores using other factors like multiple folders, file versions, and backup date that you get when performing file-level backups. If you need the benefits of both, however, then my recommendation is to perform both types of backups on the system in question. That's what I do with my work system. I perform weekly image backups and daily file-level backups of my User folder - each with different retention.