Here are the answers of your questions.
1. How can I use RAD editor Lite in a user control(how to declare the editor) ? - You can not use the Lite version of RadEditor for MOSS in user controls as MOSSRadEditor. The reason for this is that the control is designed without public constructor.
2. Can the older RAD editor be configured to use images from Sharepoint picture library? If yes, how? - There is not an easy way to achieve the desired functionality.
3. or is there a better solution for the above mentioned problem scenario?
- The better solution is to use the full version of RadEditor for MOSS.
I can see that there are no purchases or licenses attached to your
account. If you open an official support ticket (use the Ticket ID of
this forum thread as reference) from the account used for the purchase
of your RAD editor(asp.net, RadEditor.net2.dll version, 126.96.36.199)
I will be able to send you a full version for RadEditor for MOSS, which
will be corespondent to the RadEditor that you own and it is no longer
available for download.
the Telerik team