The default user experience for LiveWriter-OnScreen is "Snip and Blog"(a phrase from my design notes).
I insist on using a free photo-sharing site to save my screen snips so Snip and Blog would only make sense if I could upload my screen snips somewhere free. That's why we do the flickr upload. You can also insert the screen snip without uploading to flickr, but then you'll need to have an FTP server set up to upload images.
I am especially happy with the "Blog item from my feeds" feature which was never in the initial design, but just made sense.
Having an onscreen mode lets me blog like I do email, all the time. (saves a few clicks too)
The two features that I really wanted were "Snip and Blog" and "Blog my feeds". All the other features were either easy or side-effects.
Visit the help for more information
The LiveWriter team is working on an "Insert Screen snip" plugin (mentioned in LiveSide with J.J. Allaire)