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Ok, I've figured out the problem and how to fix it. Problem is that I'm not sure how to fix it without giving permissions that aren't meant for the user base. I'll keep at it. If you use the image tags in the post then it should work fine (at least it did in my testing), but the Ctrl+P/Insert...

Replicated the problem, trying to find what is causing it now.

Yeah, insert is what it should say. You should have permission to post Images everywhere but your Sig (up to 10 per post). If you weren't trying to post it in your Sig, please tell me where.

You clicked Insert Image and then the By URL option, pasted the URL in, and clicked save, and it didn't work?

The issue is resolved. It was a problem in the Xenforo software, and it is not fixed. Anyone who suffered from it should be fine once they clear their cache @Battlegrinder @Gastaph Hediatrix