The HTML editor for journal entries has a button to insert images; however, it only allows you to link to an image somewhere on the web. By adding a few parameters to the journal html editor element, users can have the option to upload an image with the entry.

In mod/journal/edit_form.php, change:
$this->_form->addElement('editor', 'text');

to:
$this->_form->addElement('editor', 'text', '',null, array('maxfiles'=>EDITOR_UNLIMITED_FILES));