After working for hours to figure this out here's what i have found with adding images to your entry using custom fields.
I created a Custom Field for System Object = "Entry" called 'assettest' this gives you the sample code:
<MTIfNonEmpty tag="entrydataassettest">
assettest: <MTentrydataassettest>
</MTIfNonEmpty>
The output of this code will look like:
assettest: View image
with the View image being a link to your asset.
In order to embed the image in the entry your code needs to look something like this:
<mt:EntryAssets>
<MTentrydataassettest>
<img src="<mt:AssetURL />" />
</mt:EntryAssets>
