It may, at this stage, only be an experimental feature, but after five years and a week or so of existence, Gmail supports inline images [1].
Posted by Kent Tamura, Software Engineer
Well, it’s about time. You no longer have to use workarounds to put images into your messages or attach images when you really want to inline them. Just turn on “Inserting images” from the Labs tab under Settings, and you’ll see a new toolbar icon[.]
Click the little image icon, and you can insert images in two ways: by uploading image files from your computer or providing image URLs.
I’ve never really had much use for inserting images inline, but on the one or two occasions where I have needed it, it has been very annoying to not be able to make it happen. One of life’s little annoyances has been fixed.
Samuel