Your colleague Chris Sangwin of the STACK project, University of Birmingham, recently released an applet-based equation editor called DragMath. It is a fully-WYSIWYG editor that can output several linear syntaxes, including LaTeX. It has been integrated with Moodle through a button on the html editor toolbar. When you want to insert an expression in your text, press the button and up pops the DragMath equation editor window. When you're finished creating your expression, press the DragMath Insert button; DragMath editor disappears and the LaTeX is automatically inserted into the html area at the current cursor position (avoiding the extra step of "copy and paste").
You can see a screenshot here, read about the documentation here, and join the forum discussion here.