I have several users on my system and each one makes the same mistakes which all make clear arguments for simple changes needed for the interface.
1) to upload an image they first try the picture icon in the editor since this is typically the icon used in every other type of software for image import. Once this doesn't work they give up. The icon should be removed or should present the file upload interface.
2) It is not clear that the file upload is for images as well. It is really of value to label it "File & Image Upload" instead. This is why the users gave up.
3) I wrote a tutorial explaining how to upload (see my blog, you will see it) with screen shots. After this they were able to upload images but every single one uploaded a thumbnail for an image that should have been full originals or at least thumbnails with links. It would be nice if the admin could set the defaults for images. (Note: if you look at the blog, I went in and manually changed all the images to be full size myself instead of asking the users to do so.)
4) To solve the above issue I will write my tutorial and have the user use the "send to editor" option for the image instead of instructing them to drag it. However, even this is an issue. The interface for changing "Thumbnail" to "Original" is not intuitive. Likewise for Link or not linked. This should be changed to a checkbox. Or something that users are more familiar with.
Another options is to have two tabs, one for thumbnails and one for originals. Then have one universal checkbox above the tabs or on each one: "link image to the full size"
Or lastly, you might consider using an interface similar to blogger where the picture icon opens the upload interface.
I do not want to be mean, just want to point out experiances I've noticed from my users. Almost all of the above changes do not require too much code (I think). Changing the title of the upload box, or pulling out the upload box code and making it modular so that the picture icon can use it as well. Changing the image options interface to checkboxes would also quite easy.
What would take more time and perhaps are not as urgent are:
1) ability for admin to set default image options
2) giving the choice of several sizes of images or at least adding a checkbox for images of: Constrain to template width.