oh man.. thank you very much.. it's a bit tricky.. you have just select the file you want to insert then hit that 'insert' at bottom of dialog (if you click on the file it gets attached and the dialog disappears..)

just made the horrible discovery Outlook doesn't support CSS in HTML emails (not even inline, all my CSS code in inline..) now WHY is this? most other email clients support it (even webmail-based email like yahoo, for crying out loud..)

thank you..