After reading some other reviews, who claimed it worked, I decided to have another go. Maybe I had beginners bad luck.
But no. The first few attempts at posting without and then with categories worked and then suddenly the same error message appeared. I took the keywords off, in case somehow that was connected, but it had no effect. It seems once you get the error message you are stuck with it.
So unless Microsoft can fix this, Live Writer isn't going to be much use to me.