I see. It gives you the option to use a "Thumbnail" or "Full Image" after you have added the file to upload. If you choose Full Image, then it embeds it. I think what is confusing to people, and we more than likely will have this question over and over again from others in the future, is that there is no option for doing so under the Image icon, the icon where people expect to see it. I could have sworn you had that enabled a few weeks ago.
Maybe I can create a step-by-step instruction thread, in my spare time, to detail how to do this, so we can just point folks to it instead.
Jen, you getting all this?
1. Go to the Upload a File button next to the Post Reply button below.
2. Drill down to your hard drive include the image.
3. Select either Thumbnail or Full Image. (Thumbnail adds the image of file as an attachment, while Full image will embed it to show its full size.)
4. Add text to the post.
5. Click Post Reply.