From the looks of it, you're trying to post a pic that's resident on your computer. First you'll need someone to host the picture. Like Webshots or Picturetrail. Then, when you get it on one of those sights, go to your preferences. In your sig space, enter the website address of that picture with the tags on each end. That should do it..
Using your sig as an example, you'd enter "{img}[url]http://C:/My[/url] Documents/thoughtless.jpg{/img}"
But as I said, looks like you're trying to display an image directly from your hard drive and that's a no-no....
EDIT: had to replace the [ and ] with { and } above because my numb brain didn't realize that if I type it in right, it looks for an image and the Big Red X pops up...so when you type it, use [ instead of {.....