How to prevent users uploading images from their system?
There are three major projects for handling media libraries in Drupal 7:


IMCE
Media
Scald


The most basic solution is IMCE. It is simply a file browser for files on your server. I.e. image files are just files on your server and Drupal isn't really aware of them and their meta-data.

The Media module uses in its ver. 2.0 File Entity module to manage media files, making it well aligned with the Drupal framework. It is a tried and tested solution for those who want something more sophisticated than IMCE.

Scald is a relatively new entry for media management. It comes with a very powerful media library sub-module and integrates seamlessly with the CKeditor WYSYWYG editor through drag and drop.  It has a bit steeper learning curve than the two others, but is IMHO well worth the effort.

Whether users are allowed to upload files (as opposed to pulling them from a library) are for all three projects handled by permissions settings.