I had this issue too. Long story short, whether it's embedded or "inline" my pictures suddenly stopped sending pics as an attachment and were then embedded in the message.
Not sure why, but to echo others posts the steps I took which fixed the problem were:
1) sent my device an email that contained a signature composed in another email client that included some element of html - i.e. a color font, a picture etc. - in my case both.
2) while on the device, copied and pasted the signature from the email into the signature setting under the settings > mail > signatures to the appropriate account - I have other accounts, with different signatures that are plain text.
3) Tested by sharing pictures, via the Apple photos app, with the Apple mail account and it worked!
FYI iphone 6S running version 10.3.1 (14E304)