This site has always been weird that way, even well before the upgrade. Pictures will show as your writing but not in the final post. It's limited to just this site, many other forums have similar issues.
Saving the images to a hard drive on a computer, making sure the format is correct and uploading them works. Linking to an account like photopail or similar also works. Micro$$$$ and googleye have others but I'm not familiar with them.Here's what the image script looks like :"<p xmlns="http://www.w3.org/1999/xhtml"><img data-mce-src="https://mail.google.com/mail/u/0/?ui=2&ik=69168bd2ce&view=fimg&th=1442d92735b6ddb9&attid=0.1&disp=inline&safe=1&attbid=ANGjdJ_GQ73Nc0vtMo8dRQWl98z8r5dqxe5GbB1e99Wc7kxSlCjDdJvRxZe32AGEvIBUSX4v3hONuK7Vo7eGP-tXZpcHtSZaFvMyINpQYyVwtbGQvL_eAzT2Lim5yFU&ats=1392340045506&rm=1442d92735b6ddb9&zw&sz=w1483-h603" alt="" src="https://mail.google.com/mail/u/0/?ui=2&ik=69168bd2ce&view=fimg&th=1442d92735b6ddb9&attid=0.1&disp=inline&safe=1&attbid=ANGjdJ_GQ73Nc0vtMo8dRQWl98z8r5dqxe5GbB1e99Wc7kxSlCjDdJvRxZe32AGEvIBUSX4v3hONuK7Vo7eGP-tXZpcHtSZaFvMyINpQYyVwtbGQvL_eAzT2Lim5yFU&ats=1392340045506&rm=1442d92735b6ddb9&zw&sz=w1483-h603"/></p>"