The images work!  Yes!  After several versions,  it looks as though the LiveWriter/Wordpress image upload problem has been fixed (at least on this test). 

(Wait a minute……that test was from my office machine……using 1.0.109   at home I have 1.0.1.6…..I’m trying to find that earlier version to use here at home……I wish Microsoft would fix it all with a new release……there doesn’t seem to be much energy behind WLW,  which is a shame,  because I love it,  and would even more if the image thing would work.