I had the exact same problem. I think your xml code has to start with the panel-element. My xml started with some xml comment, which narrowed down my edit options in Splunk UI.
most likely the dashboard have been converted to an html dashboard.. is "edit source" and "edit permissions" available?!
if none is available you might have lost permissions to write the dashboard.
If you use a website such as www.tinypic.com
You can upload your image there, and it will provide you with a link for you to put here, and then we just load up that link and it will display the image.