Around 2 years back I remember while composing a message in Yahoo Mail, right clicking used to give out a feature "Insert Image", choosing that prompted a Java window to feed the location of the image stored on a web server. And it worked excellently. I never got a complaint from any of my receipents that he had problems viewing the image. God knows why Yahoo removed/stopped that option/feature.

If you are using the old classic style of mail why not try using the Photomail feature