[eluser]Narkboy[/eluser]
If you don't want to impliment something like TinyMCE then you can use an Ajax file upload field to upload the images and drop an image tag into the text upload. That way, when the text is displayed, it will load the image from it's storage folder. I'd use AJAX to upload the files to make it quicker and more intuitive.
Personally, I say go with TinyMCE - it's a god-send!