Per Default Windows Live Writer can only insert arbitrary images. Today I found this plugin from Rahul Soni who works at Microsoft:

http://blogs.msdn.com/rahulso/archive/2008/02/17/smiley-plugin-2-0-for-windows-live-writer-wlw.aspx

It offers a new "Insert" option:

Per default you can insert smileys from MSN and Yahoo. And you can define custom smileys, too. I've used that feature to use the smileys stored on this website:

Works very well.

But even good things can be improved. These small enhancements would be useful:

• To add custom smileys you have to specify the full absolute URL. And that URL will be used as src attribute in the inserted img tag. But when I add a smiley via the built-in editor of the Swyx-Forum website, a relative URL is used. It would be great if the plugin would allow inserting smileys with relative URLs, too.
• In addition to the generic "custom Smileys" tab page it would be nice if I could add own tab pages.
• A more technical issue. Writing own user-specific configuration into the program files folder is not a good idea. Non-administrators have no write access to that location. Using the proper user-specific application data location which can be easily retrieved, e.g. by using System.Environment.GetFolderPath(Environment.SpecialFolder.ApplicationData), would make it usable for standard users, too. BTW, on Windows Vista the file virtualisation helps and automatically redirects the write access to a user specific location. But that's a compatibility mechanism only. Applications should not rely on them.