Hi, "Rachael" who started this very useful thread helped me follow these instructions:
1.) Go to User CP on the left-hand side.
2.) Select Edit Options then right at the very bottom change the editor type to Full WYSIWYG Editing.
3.) Then go back one page and select Edit Signature which is in the same section as Edit Options in User CP.
4.) In the Signature Picture Box select a picture from your PC or enter the web Url of an image on another site.
5.) Then click upload.
6) Finally click save signature
Good luck!