There are 2 ways in which a photo can be added to a blog entry. The first is to add the image as an attachment to the blog entry and then in the text of the blog entry put "["ImageAttachment"]" - without the quotes:
The other way is to use a photo that has been uploaded to your Gallery. In the blog entry, click the content selector button (
) and pick the photo to insert. Remember that the URL that you use needs to be of the image and not the page that the image is on - right click on the image and select properties and then get the URL from that.
Like this:
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