http://www.vimeo.com/10488672
Printable View
When I click on the picture icon I just get the option to add a web address, no option to download from my computer. I have a screen shot but I cant figure out how to put it in the message.
Just realized, I am using Chrome, tried it with IE and it was just as you described?
Beech... small problem... the links at the top "From Computer" or "From URL" are both blacked out so you can't figure out what you are doing... they don't light up until you do a mouse rollover.... which is why you can see "From Computer" in your post above.... probably need to adress that issue after you get all your other fires stomped out.
FWIW, this is what you see when you use the "insert Image" button with Safari (4.0.5)...
http://myweb.cableone.net/abbysm/pix/uploading.jpg