Here’s an inline image example in a blog post. All users with BLOGGER status or above should be able to do this. If you have problems, please contact me.
- Create a new blog entry.
- Go to INPUT FORMAT and select FULL HTML.
- Go to FILE ATTACHMENTS (scroll down page until you see it).
- Browse & attach your file. Max view size will be 640×640.
- Highlight and copy the name of the file only, not the path.
- 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 this USA button => [inline:USA.gif]
Piece of cake right? 
P.S. A couple of things I’ll mention here: 1) Images should automatically get resized to 640×640, and 2) Max file size should be 800kB for now.