Pasting image files in HTML editable elements and expect results with proper image tags in HTML is a technology that cannot be controlled by the RadEditor control.
Rather it is a browser functionality and depends on the browser. For example, you will be able to paste image files directly into an editable element in Firefox, although, Chrome and IE do not support such functionality.
You can test this native behavior using a plain HTML element to isolate this without the RadEditor, e.g.,
"border:1px solid red; width:500px; height:300px;"
If you want to get updates on new releases, tips and tricks and sneak peeks at our product labs directly from the developers working on the RadControls for ASP.NET AJAX, subscribe to their blog feed