Well you have the option to type out your post using BB code (click the wrench icon in the top right corner of the editor to do this) although I am also an expert with the codes but still find using the toolbar is a lot faster so I'd still recommend going that route since the XenForo editor is a lot better than most of the ones I've seen on other forums.
As for uploading images, you should be able to do so via the "Upload a File" button. Do you remember what the error message you received was? Because as far as I know there are not any problems with it. Once you have uploaded a file through the "Upload a File" dialog, you will have the option to insert the image into your post either as a full size image, a thumbnail, or do neither and a small link/thumbnail will be displayed at the bottom of your post.
Let me know if you are still having issues and I will do my best to help you out! Cheers