It seems to have been caused by Google’s closing of Picasa, and the deprecation of certain image-handling APIs used by Open Live Writer (OLW).
It all depends where you’re getting the images from, see for example OLW Fix for Google Photo publishing
I don’t use Google Photo, or any other image sharing service, and I decided to carry out a simple test related to the way that I use images in OLW (that is, images that have been uploaded to my own website).
Image 1    
URL entered into “From the Web” dropdown    
(not resized)    
Image 2    
URL entered into “From the Web” dropdown    
and then resized    
…  OK
Image 3    
URL entered into “From the Web” dropdown    
(an animated GIF)       OK
Image 4
Image pasted from website page
   FAIL
Image 5      
Image pasted into Open Live Writer directly from local file system …
ERROR DIALOG …… Can’t publish files
                               The remote server returned an error: (400)   
                               Bad Request.
I can live with this, but there’s no doubt that the way OLW used
 
