BuddyPress.org

I was up late trying to implement this myself using jquery, when I stumbled across Mark it up (http://markitup.jaysalvat.com/). You can do some creative coding, implement the jquery and tell it to apply it site wide, and BAM, you and your users have instant image upload, auto bold and italics, among other great features. Just makes buddypress work more like big boys.

You can see my implementation on my site, OfficialManCard.com