You appear to have solved your own problem - insert the image using the tools provided.

I don't know what happened before, but you may not have been pasting just the image - there may have been some HTML code as well.

I seem to have come across what is potentially a bug.

I originally created a rich text signature with an image in it, by pasting the image from another application (I think it was a pdf reader). Subsequently, whenever I created a new message, the signature's image would float in my message, i.e. when I entered text, the image stayed where it was and required me to reposition it into the signature line manually after finishing writing the email.

Subsequently, I recreated the signature line but added the image from a source file, using the "insert image" icon. Problem was sorted, and the image was anchored to the signature text.

I imagine that the discrepancy in behaviour is not intended?