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Once it uploads, try right clicking the image and select copy image address. Then paste that as the steemit image url. I was running into the same problem, but that definitely fixes it!

Thank you for your reply! I was going nuts and can confirm your tip works! I found this tutorial and can confirm it works as well:
https://steemit.com/steem/@jerseymason/4cu77t-how-to-add-a-picture-to-your-post-steemit