I have tried that procedure, too, and it doesn't work even with a properly sized file. If you have the file posted in photobucket or a similar site, you should be able to copy the image location and then link to it by clicking on the thumbnail with the mountain and then pasting the image URL. That still works for me.
You can link the same way to pictures posted in the Aquatic plant pictures section here. However, there seems to be another problem uploading pictures to the aquatic plant pictures section. That also does not work for me, although it used to work. I get an error that says the image is not specified.