Word 2007 gives you the option to publish your documents to your blog. Unfortunately subtext isn't one of the listed providers given in the account setup process. In order to setup subtext you need to choose "Other" from the drop down and enter the details for your blog.
Subtext publishing is done through the MetaWebLog API and, starting with version 1.9, supports the uploading of embedded images through the newMediaObject method of that API (although for some reason Word 2007 doesn't seem to like doing this at all). This just leaves you, the user, to work out what the posting URL is. There is a standard for auto discovery of this information, Really Simple Discovery (RSD). Subtext supports this, Windows Live Writer supports it, but Word 2007 doesn't. The magic URL you need is
where obviously you replace yourblogURL.example with your actual blog URL. You worked that out, right?
Interesting there's a refresh button next to the initial list of blog server types so there's hope that updates will be delivered down to users, however I can't seem to find a way to submit a new blog type to Microsoft for inclusion. Oh well, maybe someone reading can point me in the right direction; Eileen? Steve?