Well, just to help you feel good, it is (as Dave probably already said) definitely an IE problem. I just tried inserting pics using IE6 and not only would it not insert pics into the body but the Tools wouldn't even show at the top of the blog/body. I think you're only getting text features through IE.
I did the same thing though my usual F-fox and it was a piece of cake, could drag and drop the pic, could copy/paste also.
Hang in there. Wish I was closer you could use my computer and see what Firefox is all about, then you might want to try it again. Sure makes life easy!
Enjoy the day!
