Sorry we haven't replied directly to your post sooner. And sorry about this issue, we recognize this is a painful situation currently. We'll be looking to address this in the next release.
One thing that concerns me is that you say that there is a second album created with the same name. Is it possible that they have slightly different names?
My Blog Photos and Blog Images
My Blog Photos gets created when you post to your blog using the Spaces web form.
Blog Images gets created when you post to your Space using Writer.
I agree, this is really icky right now and we hope to make this better moving forward.
Becky Pezely, Windows Live Writer