OK, the way I got it to work is... Find the gif you want to use, navigate to it in Safari, long press on the animation and click share (if you select copy then you can paste the gif into Damus but it will do an upload, not desirable). Share to Damus from the menu should work.
Discussion
Pasting the copied link is bad, cuz it uploads? Think that's what I've been doing. Didn't realize there was "share to Damus" which I assume is one of the icons there at bottom of note