I think it's more complicated here than it was on LJ, but if you have somewhere else to put it, you can type and it should work. But I'm not sure this comment will work.
It's not as straight forward here. I use either flickr which is very easy or the uploader here which is also easy once you are used to it but it is still in Beta stage so does have hiccups now and then. Have you uploaded a picture to the DW site?
It's actually very easy if your photos are hosted somewhere else. For instance mine on photobucket. I get the url from the photo on photobucket. On my post here I just hit the button that looks like a little picture then paste my url where it asks for url. then I fill in the short description. and hit ok.
Ok now I have tested the other way if you have uploaded the picture to dreamwidth, go to your image management page "http://www.dreamwidth.org/file/list" and copy the text from the image embed box which will look something like "img src='http://arachnydsweb.dreamwidth.org/file/317.jpg' alt='My son and his baby' title='Hello Daddy' and paste it into your post when you have the html tag on for posting.
Even better in my opinion just copy the image location "http://arachnydsweb.dreamwidth.org/file/317.jpg" and use the little picture button as my previous comment and post that into the URL box and press ok.
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The Other Way
Even better in my opinion just copy the image location "http://arachnydsweb.dreamwidth.org/file/317.jpg" and use the little picture button as my previous comment and post that into the URL box and press ok.
The quote marks are for ease of reading only