I'm new to Confluence OnDemand and was happy to see the image pasting feature work the first time I tried it, but disappointed when it failed the second time. It appears that the size of the image you are trying to paste affects whether this works or not. I was able to paste a 813x245 image, but not 824x254. Perhaps there's a config somewhere limiting file/image size for the upload?
When it fails, the Chrome Dev Console says "Not Allowed to load local resource: file:///C:/Users/me/AppData/Local/Temp/SNAGHTML10df81a5.PNG (I'm using SnagIt)