I wrote this up just now to help another member who PM'd me for help inserting pics into his posts. I decided it might be useful to others as well so here it is.
In the default "simple post editor" click the image icon in the tool bar.
Paste your image URL into the "image URL" box. Click "OK".
For more options select the "advanced post editor". This will add a second tool bar with more options. Click the one that looks like a picture of a tree.
The image insert dialogue will open. Paste your image URL into the "image URL" box. If that's all you want to do click the green "Insert" button in the bottom left.
To make larger pictures smaller there are a couple of options available to you. The first is to set the width of the pic to a percentage of the page width, simple put the percentage into the first dimension box and leave the second box empty. The pic below shows what 50% would look like. Click the green "Insert" button if you are finished.
To set a picture to a specific size, like 800 x 600, enter the width & height in pixels in the two boxes like below. Click the green "Insert" button if you are done.
For a mouse over, click the "Advanced" tab. Tick the box for "Alternate Image" then insert the image URL that you used in the General tab into the "Mouse Out" box. In the "Mouse Over" box paste the URL for the second image that you want to use for mouse over. Click the green "Insert" button to finish.
Hope this helps someone out. ;)