Okay. Yes, you can do it, but the only way I've figured out how to do it is a bit of a kludge. But here's how I did it:
First launched iCab, logged in to BPL, and then either create a new thread or respond to an existing post.
Touch the "insert image at cursor". Depending on how you have iCab set up, it either replaces the existing window with the pic upload screen, or launches a new tab with the pic upload screen. Choose the 'choose file' button, and then touch the 'photos' button, and it'll allow you to choose a photo in your current photo repository on the iPad. IMPORTANT - look at the name of the image in the dialog box and remember it! Hit upload. You'll get a success message.
Quit iCab. Launch Safari. Either create the new thread you wanted to create, or navigate back to the post you were responding to. Hit the reply, put your cursor in the dialog box and type or whatever, and when ready for the image, hit the 'insert image at cursor' button. Safari will launch a new window. choose 'select a previously uploaded image' and then scroll to the image name you just uploaded via iCab (this is why you have to remember the name, it might just be a bunch of numbers, etc.). Choose the one you want, hit the appropriate button, and you should get a 'success' or whatever message.
Go back to the first screen where you reply is, hit post message, and you should be good to go.
Okay, more than a bit of a kludge. But it works. If I ever get the time, I'll play with more browsers and see if any of them will work without switching. So far I've tried Safari, 360 web browser and iCab, and iCab is the only one that will allow you to upload an image, but it doesn't tie the upload dialog box back to the original window. Safari and 360 do tie the second box back to the first, but won't allow you to upload a file (the choice is greyed out in both).