[Got the Bug]

The picture has to be loaded in your gallery or on some other server (i.e. like PhotoBucket). Once the picture is in your library, click on the full size image and copy the properties (i.e. htttp://.........). Go to the advance post and click on the icon to insert the image. Copy that http://... link into the "insert image" window that pops up.

BTW - You can see that the picture no longer appears in my second post because it's no longer in your gallery.