Could this please be mentioned in the instructions, ideally in the settings page but at the very least in the post here? And if you put in an imgur URL anyway, could the error message please explain this specifically, instead of saying that it’s an “incorrect format” (which it isn’t)? Ultimately it didn’t me take so long to find my way here and figure out what was wrong, but it certainly took a whole lot longer than it should have, and it is utterly trivial to imagine someone giving up before finding their way to the 6th post in a forum thread to shed any light on this mystery whatsoever.
The instructions displayed, as well as the resulting error, are wrong. This is a bug.
I’m about 95% sure this is untrue. Imgur offers “direct link” URLs as part of its little sidebar of options when you upload anything, as well as HTML, BBcode, and Markdown that would all embed the image—none of that would make sense for a site that is not providing an image-hosting service. Numerous sites use imgur as their primary image host for user content, without any apparent difficulty. Stack Overflow even goes so far as to re-upload things hosted elsewhere onto imgur for use in its questions and answers.
Certainly, nothing on this usage guidance for imgur users who want to use imgur for forums suggests that imgur would have any problem with this usage, assuming the image isn’t adult or illegal (which would obviously be against forum rules anyway).