I have now been blogging using Word 2007 for a while. It really makes the blogging process about as painless as it can be. I don't have to worry about formatting and can include screenshots painlessly in my posts. Although I haven't done it yet, I also have the ability to create SmartArt and include that in my posts to illustrate a point (or not!):

Setting Word 2007 up for blogging with Subtext is not entirely intuitive and also required a small code change to get image posting to work.

Go to the Office menu, choose Publish and select Blog:

You will be presented with a new Word document that looks like this:

You can title your post by replacing the text "Enter Post Title here".

To set up Word 2007 to work with Subtext for the first time, you need to click on manage accounts:

Click New to create a new account. You will see the following dialog. Choose other for blog provider when using Subtext:

Then click Next. You will now see a dialog for specifying the blog API. Choose the following settings:

Click on the Picture Options button and make sure the dialog has the following options:

You are now set as far as Word 2007 is concerned. Posting of pictures will not work until you change Subtext. The problem stems from a misunderstanding of the MetaWeblog spec by Word 2007. Word 2007 is sending the blogid as an int rather than a string. The change we made was to create a duplicate method that took an int and converted it to a string in the call to the other method. The method is the metaWeblog.newMediaObject. A quick recompile later and everything works just great!