The noted problem escalated to complete failure to send replies to Live Mail emails and I resorted to Windows restore which restored normal emailing but did not solve sending Picasa photos by Live Mail.

I tried alternative procedures suggested by the Community to no avail, only alternative appears to be to use Picasa's Gmail alternative, but would prefer to continue using Live Mail as before this problem started.

Currently waiting patiently for Microsoft's answer, when can we expect one?