How do I embed an image?

Should be super simple, but I can't attach from a URL, so I have to upload from my PC which in turn causes it to be an attachment.
I know it's not a post count limitation as can be compared in this thread
The error is from trying to embed a url photo

We did a server upgrade a while back and ever since then, the "image from URL" feature has been broken. I used it all the time and I reported it to tech support, but it's never been fixed. I can raise it again.