They say there's more than one way to skin a cat when it comes to adding images to Drupal. Well here is one of those ways. There is a screencast at the bottom of the page. It shows everying but the installing of the Modules and TinyMCE.
1. Unzip and FTP all the modules to your "sites/all/modules" folder, you will have to create the modules folder if you have a fresh install of Drapul.
2. Now login to your Drupal site if not already and goto "http://yoursite.com/admin/build/modules" Check the modules you just uploaded and click "Save configuration".

3. Now to install the TinyMCE editor, extract the archive and copy its contents into a new filder in the following location: "sites/all/libraries/tinymce" So the actual library can be found at: "sites/all/libraries/tinymce/jscripts/tiny_mce/tiny_mce.js"
4. Goto "http://yoursite.com/admin/settings/wysiwyg". Under the editor beside the Full HTML select TinyMCE 3.2.6, Click Save.

5. After that a edit button will appear under the operations, click it. or go here if you can't find it: "http://yoursite.com/admin/settings/wysiwyg/profile/2/edit".

Note: You can check and uncheck whatever you want except the image and IMCE. It is also good to keep the Advance Image checked to.
6. Now click the css button, add ",img" under block formats. Under the Editor CSS: select the Editor default CSS. Now you can Save.

7. Goto create content, I'm using story "http://yoursite.com/node/add/story". Under Imput Format, check the Full HTML. You should see your nice pretty TinyMCE Editor load.

8. Click the insert/edit image.
9. Click Upload / Choose File / then Upload. You can click the Create thumbnails if you want.

10. Select your Image, click Send to tinymce, on the next window click Insert.
11. Add some text and a title, save and your all done.

Worked fine
Very good, straightforward information. I am new to Drupal and guys like this have made it a pleasant experience.
Thanks
I wish there were more people like you!!!
Thanks
Finally someone who could help...thanks
Simple and straight-forward
Thanks for saving me tons of time. Very simple straight forward instructions!