Well thank you Microsoft.
The latest release of Windows Live Writer demands that I configure a blog when I start it up - fair enough, it does want to know my blog styles in order to show me formatted posts, so I go to login and ...BAM! Login fails.
Oops! Retry. Login fails.
Expand to full email rather than just username. Retry. Login fails.
Try every combo possible. Login fails, fails, fails ...
I finally worked out that because I use 2-step verification with Google authentication, and this app doesn't have an app-specific password, it will always fail. Now this is a failing of the Windows Live Writer devs, but I wonder how many other dev teams would think of this?
My solution? Fallback to online editing. Nowhere nears as nice as Windows Live Writer, nor as available, but it works*.
Although the damn thing did put in DIVS in place of P tags and I instead of EM tags ... sigh.
EDIT: Matt was right, using an app-specific password solved my problem – apologies Microsoft devs, not your problem (well, except for perhaps not providing nice help around the problem).