DreamHost has the latest version of WordPress, which is now at 2.1.3. There's a 2.2 under development, but it has been delayed somewhat.
You can find all the release archives here:
In any case, just how did you insert your image? There is, for example, an Insert Image command available from the formatting toolbar or via a Control-M command.
Perhaps if you can explain a little bit more of what you're using and what you're seeing, I can help, since I use WordPress for my primary commentary site at http://www.macnightowl.com.
Co-Host, The Paracast
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