Microsoft Live Writer (beta)
Just downloaded and tried out this editor. For a free editor is seems pretty easy to use.
Here's a picture inserted from the tool that should get posted to the site directly...
interestingly when I tried to post this nudibrach photo of Jo's to the site, Microsoft Live Writer was smart enough to know that it couldn't post images through Blogger. It asked for an FTP site to post to. Since we own this site, the FTP details were not a problem.
This tool automatically posted up the full image and generated this thumbnail as well.
I'll be looking into this more over the coming days.