upload feature for markitup...copied from http://pastebin.ca/1763467 as pastebin.ca seems to be down.

MarkItUpInlineUpload.js

// ----------------------------------------------------------------------------
// markItUp!
// ----------------------------------------------------------------------------
// Copyright (C) 2008 Jay Salvat
// http://markitup.jaysalvat.com/
// ----------------------------------------------------------------------------
// Html tags
// http://en.wikipedia.org/wiki/html
// ----------------------------------------------------------------------------
// Basic set. Feel free to add more tags
// ----------------------------------------------------------------------------

mySettings = {
	previewTemplatePath: '/js/lib/markitup/templates/preview.html',
	//previewTemplatePath: '/markitup/preview',
	onShiftEnter:  	{keepDefault:false, replaceWith:'<br />\n'},
	onCtrlEnter:  	{keepDefault:false, openWith:'\n<p>', closeWith:'</p>'},
	onTab:    		{keepDefault:false, replaceWith:'    '},
	markupSet:  [ 	
		{name:'Bold', key:'B', openWith:'(!(<strong>|!|<b>)!)', closeWith:'(!(</strong>|!|</b>)!)' },
		{name:'Italic', key:'I', openWith:'(!(<em>|!|<i>)!)', closeWith:'(!(</em>|!|</i>)!)'  },
		{name:'Stroke through', key:'S', openWith:'<del>', closeWith:'</del>' },
		{separator:'---------------' },
		//{name:'Picture', key:'P', replaceWith:'<img src="[![Source:!:http://]!]" alt="[![Alternative text]!]" />' },
		{
			name:'Picture',
			key:'P',
			beforeInsert: function(markItUp) { InlineUpload.display(markItUp) },
		},
		{name:'Link', key:'L', openWith:'<a href="[![Link:!:http://]!]"(!( title="[![Title]!]")!)>', closeWith:'</a>', placeHolder:'Your text to link...' },
		{separator:'---------------' },
		{name:'Clean', className:'clean', replaceWith:function(markitup) { return markitup.selection.replace(/<(.*?)>/g, "") } },		
		{name:'Preview', className:'preview',  call:'preview'}
	]
};

/*
 * Inline uploading of images for the Jquery MarkItUp editor.
 * @see http://markitup.jaysalvat.com/
 *
 * The purpose of this is to avoid having to have already uploaded an image (and
 * to know the URL) when adding an img tag to edited content. This widget handles
 * the upload itself.
 *
 * The "Picture" button will reveal a dialog from which an image to be uploaded
 * is chosen. The upload's form target is a hidden iframe also within the dialog.
 * Once the iframe has loaded, the JSON response is parsed and the img tag is built
 * and then added to the editor selection.
 *
 * The server-side script should respond with a JSON object wrapped inside a textarea tag.
 * @see http://jquery.malsup.com/form/#file-upload
 *
 * The JSON object should include the following:
 * on success:
 * - status: string, 'success'
 * - src: string, the complete URL to the image
 * - width: string, the image width in pixels
 * - height: string, the image height in pixels
 *
 * on error:
 * - msg: string, whatever error msg you want to display
 *
 * All of the upload form inputs are submitted, so the server-side script might also make use of
 * the class or id assigned to the image. For example, if the image information is to be saved to
 * a database. In that case, it might also be desirable to have this script create hidden fields
 * with further data, like a content ID, so as to better identify the image.
 *
 * Keep in mind that one might have both this widget and the classic Picture buttons in the same toolbar.
 *
 * This particular example REQUIRES the jQuery.loading and jQuery.json plugins.
 * @see http://code.google.com/p/jquery-loading-plugin/
 * @see http://code.google.com/p/jquery-json/
 *
 * @author brian ally, brian ~at~ zijn-digital ~dot~ com
 * @copyright 2010, brian ally
 * @version 0.4
 * @license do what you want with it
 */
var InlineUpload = 
{
	dialog: null,
	block: '',
	offset: {},
	options: {
		container_class: 'markItUpInlineUpload',
		form_id: 'inline_upload_form',
		action: '/posts/upload',
		inputs: {
			classname: { label: 'Class', id: 'inline_upload_class', name: 'inline_upload_class' },
			id: { label: 'ID', id: 'inline_upload_id', name: 'inline_upload_id' },
			alt: { label: 'Alt text', id: 'inline_upload_alt', name: 'inline_upload_alt' },
			file: { label: 'File', id: 'inline_upload_file', name: 'inline_upload_file' }
		},
		submit: { id: 'inline_upload_submit', value: 'upload' },
		close: 'inline_upload_close',
		iframe: 'inline_upload_iframe'
	},
	display: function(hash)
	{		
		var self = this;
		
		/* Find position of toolbar. The dialog will inserted into the DOM elsewhere
		 * but has position: absolute. This is to avoid nesting the upload form inside
		 * the original. The dialog's offset from the toolbar position is adjusted in
		 * the stylesheet with the margin rule.
		 */
		this.offset = $(hash.textarea).prev('.markItUpHeader').offset();
		
		/* We want to build this fresh each time to avoid ID conflicts in case of
		 * multiple editors. This also means the form elements don't need to be
		 * cleared out.
		 */
		this.dialog = $([
			'<div class="',
			this.options.container_class,
			'"><div><form id="',
			this.options.form_id,
			'" action="',
			this.options.action,
			'" target="',
			this.options.iframe,
			'" method="post" enctype="multipart/form-data"><label for="',
			this.options.inputs.classname.id,
			'">',
			this.options.inputs.classname.label,
			'</label><input name="',
			this.options.inputs.classname.name,
			'" id="',
			this.options.inputs.classname.id,
			'" type="text" /><label for="',
			this.options.inputs.id.id,
			'">',
			this.options.inputs.id.label,
			'</label><input name="',
			this.options.inputs.id.name,
			'" id="',
			this.options.inputs.id.id,
			'" type="text" /><label for="',
			this.options.inputs.alt.id,
			'">',
			this.options.inputs.alt.label,
			'</label><input name="',
			this.options.inputs.alt.name,
			'" id="',
			this.options.inputs.alt.id,
			'" type="text" /><label for="',
			this.options.inputs.file.id,
			'">',
			this.options.inputs.file.label,
			'</label><input name="',
			this.options.inputs.file.name,
			'" id="',
			this.options.inputs.file.id,
			'" type="file" /><input id="',
			this.options.submit.id,
			'" type="button" value="',
			this.options.submit.value,
			'" /></form><div id="',
			this.options.close,
			'"></div><iframe id="',
			this.options.iframe,
			'" name="',
			this.options.iframe,
			'" src="about:blank"></iframe></div></div>',
		].join(''))
			.appendTo(document.body)
			.hide()
			.css('top', this.offset.top)
			.css('left', this.offset.left);
				
		
		/* init submit button
		 */
		$('#'+this.options.submit.id).click(function()
		{
			$('#'+self.options.form_id).submit().fadeTo('fast', 0.2).parent().loading();
		});
	
				
		/* init cancel button
		 */
		$('#'+this.options.close).click(this.cleanUp);
		
		
		/* form response will be sent to the iframe
		 */
		$('#'+this.options.iframe).bind('load', function()
		{
			var response = $.secureEvalJSON($(this).contents().find('textarea').text());
			
			if (response.status == 'success')
			{
				this.block = [
					'<img src="',
					response.src,
					'" width="',
					response.width,
					'" height="',
					response.height,
					'" alt="',
					$('#'+self.options.inputs.alt.id).val(),
					'" class="',
					$('#'+self.options.inputs.classname.id).val(),
					'" id="',
					$('#'+self.options.inputs.id.id).val(),
					'" />'
				];
				
				self.cleanUp();
				
				/* add the img tag
				 */
				$.markItUp({ replaceWith: this.block.join('') } );
			}
			else
			{
				/* A really basic example. This should do something a bit more sophisticated.
				 */
				alert(response.msg);
				self.cleanUp();
			}
		});
		
		/* Finally, display the dialog
		 */
		this.dialog.fadeIn('slow');
	},
	cleanUp: function()
	{
		this.dialog.fadeOut().remove();
	}
};

/* Styles for InlineUpload widget by brian ally, zijn digital
 * Add these to the bottom of the default set stylesheet.
 * Don't forget to supply a cancel.png!
 */
.markItUpInlineUpload
{
	position: absolute;
	z-index: 100;
	width: 300px;
	margin: 22px 0 0 40px;
	padding: 1em;
	background-color: #EEE;
	border:3px solid #3C769D;
	border-top-color: #EEE;
}
.markItUpInlineUpload > div { position: relative; } /* for positioning "loading" image */

.markItUpInlineUpload label
{
	float: left; clear: left;
	width: 4em; height: 2em;
	padding-right: .5em;
	font-size: 80%;
	font-weight: bold;
	color: #666;
	text-align: right; 
}
#inline_upload_close
{
	float: right;
	width: 16px; height: 16px;
	margin-top: 4px;
	background: transparent url(images/cancel.png) 0 0 no-repeat;
	cursor: pointer;
}
#inline_upload_iframe { display: none; }


/* The following is a very basic PHP script to handle the upload. One might also
 * resize the image (send back the *new* size!) or save some image info to a
 * database. Remember that you can modify the widget to include any data you'd like
 * submitted along with the uploaded image.
 */
<?php
$upload_dir = '/var/www/vhosts/test/htdocs/uploads/';
$upload_path = $upload_dir . basename($_FILES['inline_upload_file']['name']);

$response = array();

if (move_uploaded_file($_FILES['inline_upload_file']['tmp_name'], $upload_path))
{

  $info = getImageSize($upload_path);
  
  $response['status'] = 'success';
  $response['width'] = $info[0];
  $response['height'] = $info[1];
  $response['src'] = 'http://'
  	. $_SERVER['HTTP_HOST']
	. substr(realpath($upload_path), strlen(realpath($_SERVER['DOCUMENT_ROOT'])));

}
else
{
  $response['status'] = 'error';
  $response['msg'] = $_FILES['inline_upload_file']['error'];
}
echo json_encode($response);