Here are the gory details.
Let me add my thanks to the great guys at phorum.org for their help in trying to work out what went wrong. The WordPress folk seemed less interested, maybe because the forums there are so busy that a hack report makes barely a ripple. Further the WordPress code itself was not to blame, so it was not their problem to solve.
I loosened the permissions on the WordPress uploads folder in order to upload images with Live Writer. Lesson learned; I’m back to using SCP.