Windows Live Mail does not have an "edit source" option.
But there is a way to get around this nuisance if you need to create a specially formatted email message.
I opened Microsoft Office and created everything on a Word document.
When I had everything (text, images, etc.) exactly the way I wanted it, I clicked on Edit > Select All, then Ctrl C to copy the message.
Pasting the message into Windows Live Mail worked perfectly.
It's more of a nuisance than not having an "edit source" button, but at least the results are exactly as I wanted to see them in the outgoing message.