The only way your photos can appear within your posts is if they are hosted on the internet somewhere. The instructions were written with that in mind.....

1. Find the photo you want to use.
2. Click on the thumbnail to enlarge it.
3. Click your right mouse button, go to the bottom of the menu and chose Properties.
4. Highlight the URL of the photo and copy it (control C)
5. In your post, in the SB Code section above the text box, click the IMG button
6. Paste the URL of your photo there and click OK.
7. Your message will include something similar to this....
[*IMG]http://allenhost.com/albums/Roatan-2002/aab.sized.jpg[*/IMG] (remove the *, added so it wouldn't work!)
8. Send the message and your photo will appear in it.

If your photos are not hosted on the internet, you may attach a photo uploaded from your computer, 5 files per post if the size is 100K or below.

Not all, in fact most, of the free hosting sites do not allow photos on their site to be imbedded. I know Imagestation.com used to but I'm not sure about them now, Yahoo and MSN do not. Ofoto.com allows imbedding but I'm not sure about any others.