Here is my latest scrappy quilt in the works. so when you open the paperclip you choose a file and your pictures will open.
Make your selection,
close picture screen and the picture code will show next to choose a file.
press upload and close screen
now click the paperclip and the picture code will show, click the picture code and it will show up as the attachment
The actual picture will show when you post.
hope this helps a little