Nobody could ever be happy with the SharePoint wiki by comparing it to any other wiki system.
So, don't compare it. It has the basic features necessary for a wiki to be useful: you can enter (somewhat) richly-formatted text, along with links to other pages, whether or not they exist. Clicking a link to a nonexistant page will take you to an edit page for the new, empty page, allowing you to save the page.
Yeah, the picture support sucks. You have to create the picture first, then paste the URL of the picture. So, take two minutes and create a picture library to post wiki pictures in.
Remember the main goals for a wiki - not to compete with other wiki tools, but to get ideas written down, quickly, and without stopping to structure them. Structure can be added later, if at all.
As others have said, telerik offers a replacement for the Rich Text editor, there is a CodePlex procject working (slowly) on improvements, and, people, it's SharePoint - if you don't like it, you can customize it. It's ASP.NET, web services and Windows Workflow Foundation.
I don't recommend anyone go out and buy a MOSS license just to implement a wiki (or blog, for that matter). But if you've already got the SharePoint infrastructure (perhaps as part of Visual Studio Team System Team Foundation Server), then go for it. I've seen several SharePoint wiki libraries used to hugely improve the amount and quality of developer documentation available to several groups within a large software development organization. Once we shut down discussion on how great other wikis were, quite a lot of documentation just happened, by itself, just like it's supposed to do.
