Quote by Turias: Is this possible? Or are there ways to circumvent it?
Possible - sure. What I'm not so sure about is if there are ways to circumvent it.
For example, we had a security problem with the built-in image upload at one point: It was possible to embed a PHP script in an image and use that to do Bad Things on a site (the exploit also involved Internet Explorer's crappy handling of MIME types - can't remember the details now).
Anyway, my point is that you need to think of these kind of things before you add such a feature (PHP wouldn't be a problem, obviously, but what about other scripting languages?).
Yes, I see that there is a need for a way to let normal users add images to their stories. But I'm not sure what the best way would be (and in any case, I think it should be configurable) ...