Re: Auto insert image (inline images)
I don’t believe that exists yet. The attachment plugin was modified to allow you to insert the image after uploading it, but it’s a two step process and clunky (IMO.)
I think the easiest thing is to just have the users use something like ImageShack or PhotoBucket and then use the allow images plugin. They upload the image to hosting, then insert the image. Problem solved.
The images are not stored on your server, but my users had no trouble with that process (find hosting, then upload the image.) They can also hot link to other images on the net without having to upload it anywhere.