Dave, you've read this right... http://www.4x4wire.com/forums/faq.php?Cat=0#image

If so, here's a quick run down.
1) the pic needs to already be online somewhere.
2) the URL for the pic must end in a .jpg or .gif.
There may be other file extensions that also work but these two are the most common and will work for sure.
3) when adding the picture simply type [img] then the URL of the picture and [/img] right after it. No extra spaces or anything.
4) it may still not show if the picture site you're using doesn't support linking to its pictures.