Instead of using the paper clip "Attach files" option, on the top of the post window, there's a little picture icon. Click on that.
When you click on the "picture" icon, there's 2 options on the top of the little pop up window. By default, it's on the "Upload Image" option. There's also a "link" option if you want to enter a URL for the picture.
On a related note, Doc - is there a setting where all pictures are displayed in their full-size as opposed to the thumbnail? I don't like to have to click on the thumbnail, view the pic then close that window. (Too many steps.)