This may not be a bug, but a limitation. Images can be created dynamically. For example a link like:

http://mydomain.com/image.php?a=1&b=2

the output of which could be an actual gif/png image. This is common for charts and graphs on stock market sites.
e.g. http://cchart.yimg.com/z?s=mrk&c=^dji&a=v&p=s&t=1y&l=on&z=m&q=l

[img]http://cchart.yimg.com/z?s=mrk&c=^dji&a=v&p=s&t=1y&l=on&z=m&q=l[/img]

The board software seems to only want regular expressions that end in gif/jpg/png. Does anyone know how to fix this limitation?

You'd have to alter the do_markup function. About line 603 there is a portion of the regular expression that looks for (.gif|.jpg|.png). If you pull that out it should allow you to add those types of images. The only problem is that it allows the user to possibly load a script of some type dynamically in the post which opens up security issues.