I just installed the TinyPic Plugin to replace the removal of the Attachments option. This added the option to Upload to TinyPic when writing a post. It is at the bottom of the posting screen next to the Poll Creation and Options tabs.
You can choose either to insert a picture you have already uploaded, or you can choose to Upload a picture from your computer. Once it uploads, there is a button to Add to Post.
Please let me know if there are any glitches with this plugin.