Recently I came across a scenario in which the user was using content editor web part (CEWP) and using the Rich Text Editor ribbon of SharePoint 2010 to format the content. The user noted that "Insert Picture From SharePoint" option is disabled on a page.
I started investigating and came across MSDN Forum where it is mentioned that activating a publishing feature will resolve the issue. The site must be in publishing context. In our case, the site has the publishing feature activated.
We tried creating various kind of pages (Wiki Page, Web Part Page and Publishing Page). The option was enabled for every kind of page on the same site.
The option was disabled for only one page i.e. default.aspx. The page resides at the site root. I created a web part page in "Site Pages" and verified the option is enabled for the page. I opened the site in SharePoint Designer 2010. I moved the page to the site root. Again, I browsed for the page in edit mode and verified the option, it was disabled.
The page at site root does not belong to any library and has no associated content type for it. The page has few content management features disabled such as "Versioning", "Edit Properties". This is because the page was not child of any library (an orphan page or the parent is site).
Publishing feature has a strong bond with content management features. As the page do not have content management features available, it was not able to take advantage of the publishing context also. That's the reason, it was showing "Insert Picture From SharePoint" in disabled state.
This is not only this option, it also disables capabilities to cut, copy, paste in the Rich Text Editor.