So typically when I needed to upload pictures or include them into my blog posts I had to use several tools and then finally copy and paste them in, or upload them separately and then mess with the HTML to make it look good, not great but I settled for good, well guess what, it's way CRAZY what you can do with Windows Live Writer. When you import a picture you get a pop up window on the right side of the Windows Live Writer application which enables you to customize pictures, and it works really well, I wrote my SMX Sydney 2008 - Keynote with Marisa Mayer of Google post from earlier today with it.
So once you click on the insert a picture button as shown below, a window comes up from which you can browse to your picture location, once you do so, it takes a quick second your picture loads into Windows Live Writer.
Then the menu below comes up to the right of your screen where you can customize your picture layout and borders on the image tab, rotation, size and text on the Advance tab, and effects for transformation and overlay on the Effects tab as shown below. To download your own version of Windows Live Writer Beta for FREE and it's been out since Nov 2007.