Windows Live Writer is a marvelous tool for putting rich content (images and video) into a blog post and pasting / cropping / resizing images mixed-in with text. It only suffers from one limitation that I can see: when pasting an image from the clipboard it always generates a .png image which tends to be at least 5 to 10 times larger than its .jpg equivalent.
Of course for small images this is not so much a problem. I have a problem though when it creates 300-400kb images that ought to be 50 or 70kb.
Here is a solution: save the file to .jpg in your image editing software. Then in Windows Explorer just Right-click > Copy the file name. Now when you paste it into Live Writer, it creates it as a jpg!
