I suffered from this for several days. There are loads of messages about this all over the forums. There seem to be two fixes.
1 Insert a temporary folder. I cannot now find the message that suggested the location, but you will find it if you search. The problem lots of people seem to have had is that they do not have access to the file structure through their ISP. I copied and pasted a message to my ISP, they inserted a TMP file and the problem disappeared.
2 I am amazed that no-one has suggested the alternative as a workaround. Just locate the image in your web directory (upload it first if needed with any ftp program) then manually insert an html href tag to point to it. That’s all the insert image button does. Of course, you need a separate ftp program, but there are several free alternatives and it’s a useful thing to have. You can easily find the structure of the href tag by searching on the web. Once you have it you can copy and paste for all future images.
I hope this helps.
Stuart
