I just encountered the same problem and tried to just copy the image I wanted to upload in my collectives page straight from the folder on my computer (click its thumbnail and ctrl+C) and then paste it (ctrl+V) just where I needed it in the collectives and it worked. Not only that, the paperclip button also immediately showed up in the horizontal menu too, which I can now use to upload more images.
Actually no, I don’t seem to have any options for this either. I looked around for a bit, and my only workaround suggestion would be to just resize the image in whichever size you would need it to show up on your page by using a third party tool or website and then upload. I hope someone brings this back this feature.
I have the same problem. I would like to make instructions available on a Collective page. Among other things, I use small images, e.g. I want to explain the function of an icon. But the image - even if it is only a small icon - is always displayed in full width (small image with a large frame around it). Do you have any workarounds?