Here's an inline image example in a blog post. All users with BLOGGER status or above should be able to do this.

Method #1

1. Create a new blog entry.
2. Go to INPUT FORMAT and select FULL HTML.
3. Go to FILE ATTACHMENTS (scroll down page until you see it).
4. Browse & attach your file. Max view size will be 640x640.
5. Highlight and copy the name of the file only, not the path.
6. Enter text and then add "["inline:filename"]" (without the quotes--I had to use them to get the tag to show correctly) replacing filename with your file name.

Example: I've attached a file called "USA.gif," so I add it by replacing filename with "USA.gif" (no quotes) in the inline tag, and if done correctly, you should see a USA button below:

Method #2

You can use the image feature in the advanced WYSIWYG editor to add images. Method #1 is slated for the trashbin soon.

NOTE: Images will automatically get resized to 640x640, and maximum file size is 800kB for now.