The Ulysses App is down for now. I am working with tech support on a solution, but I think I have found it on my own.
The support people had me do a few things which did not fix the problem. Many years ago I used to do tech support on Mac computers. One of the things we did was to create a new user on the machine, login and then retry what caused the problem.
I did this by starting Ulysses, creating a test article and inserting an image. Guess what, it worked! The image insert displayed properly.
What can we conclude from this? There is a conflict in my main system between Ulysses and something else that is installed in that setup.
I have tons of applications installed. Finding what causes this conflict is almost impossible. For now, I am going to wait for an update to Ulysses or macOS that might fix this issue. Until then, I will use iA Writer for my blog which should be fine. It handles images with no issues.
Doug
PS: The tech people figured out how to fix my Ulysses problem. It is all good now and I am back to using Ulysses which is my preferred blogging software.