Currently only pictures that are available on the internet through a URL (that's a website address e.g. www.address.com) can be inserted in your Blog post.
To add an Image, first open the Image Properties window by clicking on the Blog post toolbar.
In the URL Field: Insert the internet link (URL) of an image.
You can change the size of the image via the Width and Height fields in the Image Properties window. You should make sure that the image is not more than 400 pixels wide.
We know that having the ability to upload images directly to your Blog post is important, we will be supporting this feature in the near future.