I found out, how you can make Windows Live Writer (with Movable Type API NOT FTP) upload and publish entries with images:
Just create a folder "WindowsLiveWriter" inside the "upload" folder - that's it. I found out by reading Windows Live Writer's log file, that it tries to upload images into a folder "WindowsLiveWriter" in "uploads". That folder doesn't exist, that's the reason for the error message.
Happy posting with Windows Live Writer!
If you understand German, you can find a blog post from me here: Einträge mit Bildern mit Windows Live Writer via XML-RPC zu Serendipity hochladen
