Subtext is a great open source blogging application that is free and has simply been getting better and better over time. This allows you to post to your blog locally for whatever reasons that you may have a need to do so (testing custom code, etc.).
To setup Windows Live Writer to work with Subtext for localhost, perform the following steps below.
(At the time of this post I was using Subtext v2.0 with Windows Live Writer v12.0.1370.325 and has also worked in previous versions of Live Writer)
1) Install and run Windows Live Writer & select "I already have a weblog setup"
2) Next, choose "Another weblog service"
3) For the URL, copy and paste the localhost URL from Visual Studio that is successfully built and running in your browser, including the port #
Specify your Admin username and password
(that you always use to log into your http://localhost:<portnumber>/Admin)
4) Specify your service provider. Select MetaWebBlog as the provider and for the Remote posting URL, put in the following with your localhost port that shows up in the browser when running your website locally:
http://localhost:<port number>/<your subtext admin username/services/MetaBlogAPI.aspx
That's the basics. You should be able to follow through the rest of the wizard with no problem and start publishing to your localhost Subtext instance.