Are you using Internet Explorer? Apparently there’s a bug of some sort that prevents you from seeing the “Insert” button. You can either switch browsers, or use the “Compatibility Mode” in IE, and it should work.
Actually, I’m using Chrome. When composing the message, I hit Add File, select the file, and then I see the Insert button. But when I click it, the file isn’t uploaded — just the fakepath URL is inserted in the text. When I then Submit, the photo is uploaded and appears at the bottom of the page with a paper clip icon. When I then go into Edit mode, I can use the Insert button that appears next to the attached photos to get the correct URL in the text (or, I can just edit the fakepath URL so that it specifies only the file name — presumably, that’s because the file was uploaded when I hit Submit.
I’ll try it with IE sometime. I’ve been finding more and more Chrome incompatibilities lately.
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