SOLUTION: for me, I also had my url configured with some capital letters.
Changed the main url in settings to all lowercase and image upload now inserts into post fine!
Open IIS Admin. Right click on your website. Select “Directory Security” tab. Click on the “Edit” button in the “Authentication and Access Control” section. Copy the user you see there. Usually “IUSR_MACHINENAME”
Give that user write permission in the wp_content directory
Hope that helps
