We previously requested 5 permissions from you to integrate with Google Drive, two of which relate to being able to view all the images stored in your Drive. These image permissions have caused some privacy complaints (the other 3 cannot be avoided, anyway), so we've removed them. The permissions dialog now looks like this:
The removed images permission enabled us to display an images dialog that you could pick your images from Google Drive directly to drop into a diagram. Obviously, most of us have images that are personal to some extent and don't want a third-party application to be able to access, so this new setting makes sense privacy-wise.
We haven't removed the functionality completely, only removed the permissions scopes by default. If you want the functionality back, load this URL (DON'T click here if you don't want to re-enable the permission) - drive.draw.io?photos=1. This will store your preference in localStorage on that browser that you want to enable Google Drive image access within the image dialog for future sessions. If you install draw.io after the permissions change (9th January 2015), and set the photos parameter, you'll be prompted again to add the new images permissions on the app before you can use it: