I know of a sure way of getting the same result as I have achieved so far by fiddling like this for the past hour: Type the text first and then (under edit HTML mode) cut the photo codes and paste them any where among all these text. It has worked for me on countless other occasions in years gone by. The time required is only a small fraction required for method 1 by typing text and just hoping that it will flow around all the images. It doesn't, as most of you have found out the hard way. As I typed I also noticed now that photo 5 is being pushed down, as more text is being added here. I will need to pause here to try to rescue photo 5 first before it disappears completely. This is an endless cycle of fiddling with the backspace button to bring photo 5 back up again into the post editor, so that I can keep an eye on it. I need to rearrange the text, using cut and paste inside the same post editor. (Those of you who have worked as type setters at a printing press will definitely have a slight advantage here). Be aware that what you see in the post editor is not exactly what you will get (no wysiwyg here!) after you publish post.
Frustration level grows with each upload because there is no telling where the photo will go, when uploaded again. At times like this, bloggers rather go back to dragging the photos around inside this tiny post editor, as they did before; but the updated editor would not allow this drag and drop method any more. This is the major problem with older users using the new updated editor. A few bloggers just flatly refused to learn to use the new updated editor. They kept on asking: why fix it, if it ain't broken? They knew for sure that the old method worked before. Their photos will not disappear suddenly like it is doing now with the new editor. Hence the frustration levels are rising higher for these bloggers. They are still asking for an easier way to arrange photos on their blogs, not realizing that Google has already given them what they have been asking for, all these years. Use the updated post editor. Case closed!