To date Microsoft has not answered this question. I feel as if I wasted yet more time and frustration with this issue.
Technically, a Microsoft support engineer answered this question and has received several votes that the answer was helpful. Probably we need to open a new issue if we want to get any further attention from Microsoft.
That having been said, since I clicked the "me too" button some time ago for this question, I have discovered some of the functionality I missed from the XP scanner and camera wizard in the Windows Live Photo Gallery. It's not as simple and straightforward as I would have liked, but it does allow you to select which photos and videos to copy or move from the camera and helps to categorize them, albeit in a different way.