In 5.0, the Blog widget does allow you to add images directly from the widget. The Blog widget has a FileRepository property, which will be used to store the images. You can add an image by clicking the image icon on Blog entry editor's toolbar (second from the right).
You can find a copy of 5.0 on the ThingWorx Community site under downloads. You will also find Installation and configuration instructions under the download icon which includes migration instructions.