I've always used pics that are hosted on other sites (fotopic, pinkbike, etc) . . . typing [ img ] url of picture [ / img ] (but without any of the spaces) . . . fotopic images need the 'direct link URL' which you can find by going to 'your gallery', clicking on 'edit collection', click on pic you wish to use which will then open in a new window, at the top of this window click on 'info', which will give you the 'direct link URL'. Hope that makes sense.
Having said all that I've just noticed the 'add an attachment' box at the bottom of the reply window. Let's see if that works to upload a pic from my PC (I'll use the tiny one from my avatar as all my pics seem to come out waaay too big) . . .