Hi Chuck,
We were thinking the same thing a few months back and had already developed a prototype of a tool which has now become metaPost. As I studied the barriers to entry for the many people who don't blog, I realized, just as you described above, that one of the frustrating things about adding content on the web was the issue of working with images. It was easier for me to create a Word document with all my images and upload the finished document to the web. As we created metaPost, we realized that using the MetaWeblog API will be useful for much more than just blogs, so we've created a provider infrastructure to allow the creation of posting providers for any DNN module where HTML content needs to be posted. metaPost Community Edition is available for free and it also supports setting a custom path for images.
One of the goals for us when creating metaPost was to make the installation and use of the module as painless as possible. We wanted you to be able to just install the module and begin blogging. We've also worked hard to make sure the integration with Windows Live Writer is as seamless as possible. For example, we've created metaPost so that it takes you directly to your blog post after posting. We also worked to make sure that WLW could make use of the feature where it picks up the theme and template of your site so you can see the exact width of your blog post as you write it. We'll be releasing a version soon which will support posting to any third party module through the provider pattern mentioned above. Our main goal with the provider infrastructure was to make this as seamless as possible too, so third party module developers can include a metaPost provider with their module and it will just work out of the box with metaPost.
metaPost works with Word 2007, and you can see this in action in a short video I created, but I would still recommend using Windows Live Writer. Word doesn't have nearly the number of features for blogging as Windows Live Writer.
Our goal as the product develops is to create a tool which you can use to manage all of your DNN content offline using your MetaWeblog software of choice. I hope also to see the development of other tools similar to Windows Live Writer but designed for use beyond the blog metaphor.
HTH,
Don