Having worked with both the software for some time now, here's a quick review and comparison of Windows Live Photo Gallery with Picasa (do not confuse Picasa desktop software with Picasa Web Albums).
Round 1: Interface & Ease of Use - Both Picasa and Windows Live Photo Gallery have a pleasant and intuitive interface with basic photo editing capabilities. You can zoom, rotate, search, add ratings, tags and text captions to your photographs very easily. In Picasa, it is possible to select multiple images from different file folders by holding then on to the image tray but in Windows Photo Gallery, you can select images only from the current folder.
Round 2: Speed - When it comes to speed, Windows Photo Gallery wins over Picasa by a huge margin. Picasa, in the last few months, has become extremely slow - the software sometimes even freezes while importing new media content into the library. Windows Live Photo Gallery is lightning fast when you compare the start-up speed or when it process new photographs.
Round 3: Screen Saver - Picasa Screensaver (now known as the Google Photos Screensaver) allows you to add live photo streams (like Flickr RSS Feeds, Yahoo! News Photos) while in Windows Live Photo Gallery, only the local photos appear in the slideshow. Unlike Windows Live Screensaver, Google Picasa Screensaver supports dual monitor screen - alternate photos appear simultaneously on both the screens.
Round 4: Download Video Clips, Pictures from Digital Camera - Windows Live Photo Gallery taken an intelligent approach here - the moment you connect your still camera to the computer, Windows Gallery will logically group the photos based on the date when the photos where clicked. That makes selecting and transferring photos from the camera to the hard drive a snap. And unlike Picasa, Windows Live Photo Gallery is again very fast.
Round 5: Bells & Whistles - There are some features which are unique to both the photo management software. Picasa lets you create large wall posters from your images, photo collages, web galleries or even small movie clips from your still photos. You get none of this in Windows Live Photo Gallery but for an excellent Photo Stitcher that will help you build panoramic photos automatically or even Google Maps wallpapers.
Round 6: Integration with External Services - In Picasa, you can upload images to Picasa Web Albums, videos to Google Videos or photo blog in Blogger. In Windows Live Photo Gallery, pictures can be uploaded to Windows Live Spaces while videos go to MSN Soapbox, a YouTube like video sharing services from Microsoft.
Flickr vs Picasa Web - Which is better for Storing Images.
Conclusion - Windows Live Photo Gallery is extremely fast and efficient. It works so well when it comes to downloading photographs from the digital camera. You can also this as the default image viewer on Windows.
Picasa is a solid application with pretty good features but very slow. If speed is not a concern and you are a Blogger or Picasa Web Albums user, this may be the way to go.