There should be a WYSIWYG editor for user-generated templates. "Paste HTML" is a good option, but under "Edit Content" there should be formatting options, the ability to select (and upload) images, etc.
Holly, JB's Tennis Shop commented
Yes, it would be great to have the image select feature. Currently, you have to go the to the manage items section, copy the link, then go back to the editor and paste it.
There are several good open-source editors out there. One of the best that is designed for this environment is CKeditor. I have used it for years in the Joomla environment. It is straight-forward to integrate into a site. Maybe you could look at it.