Oops, hadn't checked this thread for a bit. (And I subscribed to the RSS feed which I do check but missed this.)
I have WLW working just fine with the blog I upgraded to 2.6. @Ottyo42, I did precisely that: left the two settings checked.
@adir1, I've had no issues with images in a post written in WLW and then published to the 2.6 blog from WLW. Like you, I have the WLW settings to post images via XML-RPC and not FTP, which is its default. Always has worked and still does with 2.6. My image upload path is wp-content/uploads which it always has been. Unlike you, though, I don't have uploads organized by date into separate folders.
Can't say anything re image upload via the Dashboard as I've never done that, not even with earlier WP versions.
So FWIW, in my experience using WLW on a WP blog upgraded from 2.5.1 to 2.6 (so upgraded, not a fresh install) works fine, including a post with an image.
@rreynolds, if WLW doesn't even recognize your blog, could that be re XML-RPC? Take a look at your settings in Settings > Writing - do you have the two check boxes against "Enable the Atom Publishing Protocol" and "Enable the WordPress, Movable Type, MetaWeblog and Blogger XML-RPC publishing protocols" both checked? If you've done an upgrade, they both should be checked by default.
If they're unchecked, check them and then try connecting WLW again. If that doesn't work, well, it's probably something else :)