It's an old thread, but still relevant. I agree with the OP on every point about his frustration with the Gmail android app, though I am a huge Linux fan and not a fan of Mac products. How big a fan? I've been using Linux at home and work, almost exclusively since 1996. For over 7 years, I worked as a Linux Sysadmin and then head of global internal Linux (and other mobile) desktop support for the granddaddy of Linux companies, Red Hat. Then I spent over 8 years at Google running teams that looked after thousands of a Linux and Mac systems. Also I'm an early adopter, huge fan & massive user of Google products, ever since they've first released them. Their products are in my blood and Google is a wonderful company to work for, full of the brightest, most motivated, highly communicative and inventive people, that you'll work with.
However I have always had these two big gripes around Google products and that they were never fixed was, and is, frustrating.
1. No inline images in Gmail. Google's
Absolutely unacceptable. There is such brainpower and deep technical skill in Google that it could always have been fixed. Inbox Android app (which had no editable text formatting!) di, but is deprecated in a few days!
2. When responding to a Google+ post with an image, you could not also add an image!
So if there was a "show me yours" thread or one about anything with a picture in it, you could not meaningfully, i.e. pictorially, continue the conversation. Crazy! G+ is dead and with the G+ leadership decision-making (and I include the CEO in that group) it's not surprising.
It is telling that both massive oversights are related to sharing of images.
Likewise Picasa, the photo management web service, had a very dedicated army of fans, but, also now dead.
If just 5% of Google+ resources had been instead spent on the Gmail app (web, android) the product would have been superb.
Solution (workaround) with Android Gmail, as others have said is edit your inline image elsewhere then copy over to Gmail. Same thing I used to do with formatted (bold, italic) text in Inbox, which had no formatting, by copying it over from Gmail.