I just added a modification that allows images to be inserted inline, versus only at the end of the post.
[attachment id=0 msg=5111]
you attach images the same way, but can now check to insert attachment
[attachment id=1 msg=5111]
I am not sure if I should limit the size of attachments or not
Nice idea! Is there a way to specify where to insert it in the post e.g. after a specific sentence?
If you are not paying for bandwith, storage and network traffic for the site, then there is no issue in limiting the attachment size. I have however found that anything past say 2MB photo file is a bit of waste. Your included image is less than 500KB. Unless you have generally have very high quality perfectly focused photos, it does not add much. Larger files are also a bit more tricky to upload on slower connections as you might get timeouts.
Yes, you can insert as you are typing and click "attach" and choose file, then "insert attachment"