Just above where you add your text to the blog, there is a small star icon with the text "Upload/Insert" next to it. That should be all you need. I would suggest using the 'browser uploader' version rather than the flash. The flash one can be buggy depending on your browser.
Saw that but was writing on my laptop & my pictures were saved on my netbook so I published the draft to my blog (didn't want to rewrite it + before could always post pics to an existing blog.
However now when I go in to edit the "upload/insert" doesn't appear!
It's OK Hydro I found the way, on there is an "edit" on the top right that when clicked on brings up the upload/insert asterisk. Managed to get pics up but the old system was easier for us computer illiterate folks imho