Overlay a photo in Windows Movie Maker
As Windows Movie Maker don't support multi track editing, I don't think it is possible to overlay images onto the main video. Similarly, I don't think it has the required features to blur a specific area. 
If you are looking for a software recommendation, Sony Movie Studio can do both of these things (£60), and so can Blender (free, but very hard to learn) 
Sorry not to have been more helpful.