I have trouble with their uploader when selecting some of my jpeg files off of my Ubuntu system. Even with samba and wine, on XP in Oracle VM.
They have the option for "basic uploader" in the bottom right section of the window when you press the picture button (it looks like the tree in the frame button above between the Insert Link and Insert Video buttons).
In the basic uploader you should be able to navigate to the file you're looking for and upload it. I regularly upload large files (>5MB) and they downsize automatically. Once you upload the picture you can then hover over it with your mouse cursor to expose a little "pencil" looking thing in the upper left corner of the image. Click on this and you can set the size of the picture on the screen as a thumbnail, or a variety of sizes.
Another option is to upload your picture to an image hosting site like imageshack and use the html link provided to you.
Either way, just start clicking buttons and trying shit, you'll figure it out before you break the internet.