This is almost embarrassing. I have spent the last hour or so trying to get Word 2007 to upload my images to my blog here. I use Word for most of my day-to-day document editing (and for the book I am currently working on), so I really wanted it to work.
I finally bailed on that after signing up with 4 or 5 "free" photo sharing sites (non of which allow for webdav or ftp uploads) and even tried to get the upload to work from Live Spaces. None work with Word 2007's blog "image server" setting.
Even funnier is the Office Help which points to a few services to "try," like Flickr, which don't even work with the service. I figured Community Server (which this blog is hosted on) would provide some help, but alas, no.
If any of you have this figured out, please let me know in the comments, otherwise, I'll stick to Windows Live Writer, which does just fine for now.
PS: if you can figure how I can even PASTE from Word into Live Writer and keep images, let me know that too!