Lucky, I tried yours and went into your Pics entry, which did not contain any code, and I used your media library to insert a pic. When choosing the pic, I did not select to include a url, I just inserted the image. I hit "preview" and for some reason the image didn't appear and I'm completely confused by that. I then hit to publish and it appeared. Can you give it a shot too, to make sure that we are following the same steps and it appears for you as well?
Ceranm, did you try to publish the post or were you previewing? Could you outline your steps for me? Thanks