The "Insert Image" toolbar button currently only allows inserting images by URLs -- it would be nice if it would give you the option to specify a local file path.

Right now, inserting a (local file) image into a post (inline with the text) is too hard -- I have to upload it as an attachment and then choose to insert into the post.

Note that 99% of the time that I'm inserting an image in-line into my post I'm uploading a local file, not referencing the image by URL.

I like the way that GMail allows you to upload and insert images directly into a post, as shown below:

Upload image as a file attachment and then include it in the post. :)

Of course, I like your idea also.. But I'd want the URL to be the default method with the file upload as the alternative.