Question Embed images into post?

Is there an addon perhaps so my users can embed an image into their post so it displays, as oppose to an attachment or having to URL link it.

Most don't have web storage, and I'd like them to be able to embed it and have it stored on my end.

You mean like this?

First "ADD FILE" and then "INSERT"

Exactly like that, but for some reason, I click add, browse to find the file on my pc, click insert (see the text above) and when I submit I get this:

Attachment lonelytower-2.jpg not found in a nice styled box.

Well, as it gave no error, I turned on some debugging and looks like it cannot write to the needed folder, so... I think I can fix this!

Turns out, this is more complex that I thought.

If I try to insert/upload a file with MIME on, it tells me it cannot upload MIME Type (). If I then turn it off to see a better error, it tells me the following:

JFile::copy: Cannot find or read file: 'C:\WINDOWS\Temp\phpFCE7.tmp'
Failed to upload file '66654559.jpg': Could not move file into c:\my\web\path\media/kunena/attachments\62/66654559.jpg.

Now, I can go and take that same file and upload it in the Joomla media manager tool. I can also upload it via article creation. I can also go into Community Builder, and upload.

Permissions are set correctly, they were checked.

Joomla: 1.5.22
PHP: 5.2.5
MySQL: 5.1.49
Kunena: 1.6
(Mootools 1.2.4 add on is on)
Windows (iis6)

Can you upload and embed any images in a posted message here at www.kunena.org ? You can use the Playground for those purposes, if you like.