At the moment, pasting images into the body of an email (not as an attachment) does not work. Gmail team is working on it, and hopefully solve it soon. However, there is a workaround to try. The following is the explanation of Paul McDonalds (Gmail Product Manager) about the issue dated Dec 18th, 2010:
Copy and paste works everywhere, it
should work in Gmail too, right? We
agree and we are working on a way to
enable those of you with modern
browsers (Google Chrome is our
favorite) to copy and paste an image
from the clipboard into the email
body. The problem is that most browser
don't allow you to do this without a
bunch of work-arounds. We aren't quite
there yet but trust that its something
we are working on
In the meantime you can use the
"insert image" lab that adds a new
button to the rich text compose
menu.By clicking this button you can
insert an image directly into the body
of the email and it will be displayed
inline when read.