"The server reported an error with the following URL:

http://www.your_domain_name.com/xmlrpc.php

500 Internal Server Error"

I could go on and on about what I did to isolate the issue but I know your here for the solution so let me get down to the point of what steps I took to resolve the issue for the time being.

Post with large image sizes will not post for whatever reason; so when you add an image to your post in Windows Live Writer, Select it then open the Image Properties (right click on the image and select "Show Properties")

Within the Image Properties panel you will see the filename you have selected (DSCN1434.JPG) and the width and height (1024×1318) We need to change that to anything less then the original size so click on the "Options…" button and select anything less then the original size then click "Ok".

What this does is resize the original file when it gets uploaded (a 1024×1318 file is too big any ways) just make sure you have "Lock ratio" selected. Well that is all there is to it hopefully it works for you if not then I don’t know what to tell you.