Well I'm not happy and it may just mean the end to my blogging (specifically on blogger), unless I can find a simpler and more elegant way than google's current offering. I'm sure a lot of very component bloggers are also crippled by this, Sadly I suspect deeper insight will disappear and be replaced by trite comment and a zanny picture (aka twitter with instagram), Lots of lowest denomination stuff. Not only that I also suspect this will harm the uptake of google photos, because those conscientious bloggers have relied on picasa web albums and more recently google photos to host their images. Adding a picture to blogger still show from Picasa Web Albums and that only works from an album. Creating an album is not obvious in the new google photos so google should expect quiet a migration away from its photo services by those loyal to blogger, I think google may have shoot itself in the foot more than once here. (I have since discovered you can create albums in Google Photo)
Postscript : The key to the issue is Google "demanding" OAuth 2.0 style authentication, as a default now. Live Writer only used Client Login Authentication (the way at the time it was developed) It would appear things are working again for some of us, Just in text mode, but not everyone. Embedding images finally works (3/6/15). See also this thread in microsoft forum. Google have still shot themselves in the foot here.
Post Postscript: (5/6/2015) Live Writer is playing nicely with blogger again, I believe that google has implemented the fix, rather than microsoft, but in any case there are a lot of bloggers happy again.