You have to do it from the image bar Search Results, rather than directly from your library. Open the Character Journal, and click Edit. You'll be shown the page where you can drag an image into the portrait section. Go to the Image Search tab on the chat-bar to the right. Type in a search terms that will show the picture you want (you should TAG your library images to make this work better). From the search results list, drag the image from the right onto the Portrait image. Because the image came from the search results and/or library, it doesn't count towards your quota