Hi Michael,
Based on my test, I can reproduce this issue on my side. The Picture button is grayed out when trying to insert a image into the PowerPoint file via the PowerPoint Online on iPad. I will submit this issue to our related team via the internal channel. If there is any feedback about this issue, I will post back.
As a workaround, you can use the PowerPoint for iPad to access and edit the PowerPoint document in SharePoint Online.
Thanks,
Eben Liu