I guess this is what you're trying to do?
To do that, you do use the My Pics/Open option (underneath the smilies) in the message composer. A popup window with your images appears; in this change the
Insert tools option (middle of the 3 drop-down lists) to
Clickable thumb (new window). You should be looking at something like this:
Then click on the image you want to insert.
Nerds corner: I know the "new window" description in that option isn't very clear, as when you see the zoom tool the the image isn't in a new window. But that's because it's a clever javascript alternative to opening a new window. If you disable Javascript in your browser and then click on one of these images in a post, you
will see it in a new window.
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