[cotc2001]

Use a better free wysiwyg editor than the one i think you are going to use from the screenshots.

If its the one I think it is when you click on the insert image it brings up a popup window where you have to insert the url to the image.

I've used free ones before (cant remember off the top of my head the name, but i'll try and hunt it down) where it will bring up a browse to directoy window so if you are using filesytem to store your product images then you can just choose from the folder on your server.