Regenerate the Gallery Database
Another way to fix the issue might be to regenerate the Windows Live Photo Gallery database. This is a useful general maintenance tip for this application, and is easily performed.
Begin by exiting Windows Live Photo Gallery, then press WINDOWS+R to open the Run dialog box. At the insertion point, paste the following:
%userprofile%\AppData\Local\Microsoft\Windows Live Photo Gallery
%userprofile%\Local Settings\Application Data\Microsoft\Windows Live Photo Gallery
if you are using Windows XP).
Click OK, and the required folder will open. The next step is to find any instance of the files "OLD_Pictures.pd4" and "OLD_Pictures.pd5" and delete them.
Once this has been done, find "Pictures.pd4" and "Pictures.pd5" and rename them to "OLD_Pictures.pd4" and "OLD_Pictures.pd5".
With these changes made, close the folder window and restart Windows Live Photo Gallery; the database will regenerate, enabling you to use the application as intended once more!