This was taken from one of my old forums.
(and edited to suite smf).
So, you want an image to appear as

rather than just a simple attachment....
So i will first require you to set up an account
here... CLICK ME SOFTLY, this is a free image hosting service and provides you all you need... you may also use sites such as imageshack and others but out of all my exploits I have found this is the best.
So now you have set this account up you must find your image... this must be placed in your computer somewhere easily accessible....
Although Photobucket is capable of accepting most file types, it may reject certain ones, if so, just open your file and change it :) (any trouble with that and email/PM me)
You now need to access your album, find your way there, im sure you can do that...
With photobucket you can upload 1-3 images at a time... so, at the right hand side of the page click choose button and find your image in your computer, then click upload...
After being uploaded, the image will appear in your album.
Along with the image should be 4 codes, for the purpose of this, we only need 2...
If you want to save the effort just copy and paste the "IMG Code" (bottom one)...
However if you want to be able to post any image just by stealing the direct link
We take our first command or "tag"
[IMG]
we take the thing we want in there... this is our link to the image (Direct Link-Second one) in my case
http://i5.photobucket.com/albums/y177/tentre_k9/images-1.jpgso
[IMG]http://i5.photobucket.com/albums/y177/tentre_k9/images-1.jpg
then we add the closing "tag"
[IMG]http://i5.photobucket.com/albums/y177/tentre_k9/images-1.jpg[/IMG]
that about covers it...