Actually you don't need that to insert pictures. You can still add them with URLs from the web.
When you click on Insert>picture There's another tab up there that says "Insert Picture From the Web" click that, paste your URL and you're good to go.
So you can still host your personal photos on imageshack and photobucket...or one would assume.
~Zoo
JoeUser does not support direct uploading of images to the server. You'll need your own external site to host images on you want to insert into your blogs. At the moment we don't want to get into the job of hosting misc user images for blogs.
Alternatively, as Zoo pointed out you can "insert from web" and supply the direct URL to an image you want to use.