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The picture above is a complete fake. But more on that in a minute.

Microsoft is giving a preview of a variety of enhancements to its Windows Live Essentials suite – a set of online and desktop services that includes hotmail, messenger, sync, movie maker and photo gallery. Most of the desktop versions of these services are available only for Windows users, although the online components only require a browser from any operating system.

These enhancements come after Microsoft’s preview of the online version of Office, which is also within this suite. I had a chance to sit down with Brian Hall, GM of the Windows Live Business Group, today to see some of the changes.

Many of the changes are fairly minor, but at least two are going to be big crowd pleasers. First, Microsoft has made changes to their Movie Maker video editing software that allows for the creation of Animoto-like video clips containing photos and videos. They’ve added a variety of transition and effect options, as well as the ability to add music and text, to these clips.

But the really interesting changes are around Photo Gallery. Previously Microsoft had a facial recognition feature to allow you to quickly add names as tags to photos. But they are now adding facial recognition as well, and it takes a guess as to the person in the photo. In the demo it worked very well and saves time with tagging – a lot of time. The application also has one click sharing of photos to Facebook and other services and the tags go with it.

But by far the most impressive thing I saw today was the Photo Fuse feature that they’ve added. The general idea is you can take a bunch of pictures and turn them into a single photo that’s better than any of the originals. And it only takes a few seconds.

The best use case is clearly group photos that you’d take a a wedding or wherever. Someone always has their eyes closed or is looking away. With Photo Fuse you can take the best parts of a number of photos and create that perfect group picture.

Hall spent a lot of time today showing me Photo Fuse, which I zeroed in on among all the other new features launching. We even took a few pictures of Hall and his PR people – Michael Celiceo and Bonnie McCracken – and ran them through Photo Fuse.

This was the final result – a picture that was never actually taken (the top image – you just can’t tell). The working photos that are real are below it. There’s also a video of the whole process. Fascinating stuff.

The new suite will launch in a few weeks, says Microsoft. In the meantime we’ll give away 100 accounts now – details in the next post.

More screenshots from the new products:

Ever since the launch of his CityGrid local advertising network at the beginning of the year, Citysearch CEO Jay Herratti has been putting most of his efforts into building out CityGrid as the largest network of local advertisers and local apps. Citysearch is now simply a flagship publisher on the CityGrid network. To reflect this shift in focus, the Citysearch business unit of IAC (which includes CityGrid, Citysearch, Urbanspoon, and Insider Pages) is changing its name to CityGrid Media

All of the local listings in Citysearch are available through CityGrid’s APIs so that anyone creating a mobile app or local Website can grab business listings, addresses, phone numbers, photos, reviews, and more and build their own apps around them. CityGrid also matches local advertisers with these local publishers.

The geo-local market is developing so quickly that Herratti knows he cannot predict which mobile app or approach will win out in the end. Instead, he wants to scale CityGrid to become the largest network of local advertisers and publishers so that no matter what turns out to be the hot Geo app of the moment, CityGrid ads and content will be at the center of it. CityGrid already has 700,000 paying local advertisers, and is on its way to a million. Some Citygrid partners include YellowPages.com, SuperPages.com, Bing.com, MapQuest, and Loopt.

Marin Software, a startup that creates search engine management software for advertisers and agencies, has raised an additional $11.2 million in Series D financing. Marin’s venture capital investors include a href=”http://www.crunchbase.com/financial-organization/dag-ventures”>DAG Ventures, with Focus Ventures, Benchmark Capital, Amicus Capital and Triangle Peak Partners. This brings Marin’s total funding to $35 million.

Marin Software, which just raised $13 million last year, offers a browser application to help advertisers and agencies managing paid search advertising campaigns across Google, Yahoo, MSN and other search sites. Marin’s software is used by 180 companies including Razorfish, and FreeCreditReport.com. Marin’s customers spend at least $100,000 per month on paid search campaigns across the major search engines.

Today during an interview at AllThingsD’s D8 conference, Facebook CEO Mark Zuckerberg got grilled by Walt Mossberg and Kara Swisher on Facebook’s recent privacy changes, the resulting backlash, and the company’s long-term vision.

By far the most tweeted about moment of the conversation came around a third of the way through, when Zuckerberg (who was sweating and appeared to be nervous, according to multiple tweets) took off his famous hoodie, revealing it to have Facebook’s mission statement stitched inside. Fortunately the conversation didn’t linger on Zuckerberg’s attire for long — the questions quickly turned toward some more pressing issues like Instant Personalization, and how Zuckerberg goes about making decisions.

When asked about the site’s privacy changes, Zuckerberg wasn’t exactly forthcoming. Many tweets, and the official live coverage of the event, noted that Zuckerberg dodged some questions about privacy, resorting to talk about encouraging serendipity through openness and well-worn anecdotes detailing why sharing is important. Zuckerberg also brought up Facebook’s oft-repeated stat that over 50% of users have adjusted their privacy settings, citing it as evidence that users know what they’re doing (this doesn’t convince me in the slightest — that means nearly 250 million people haven’t touched them).

With regard to Instant Personalization, Zuckerberg referred back to the News Feed backlash as evidence that innovative features can become immensely successful once the controversy dies down. He predicted that a few years from now, we’ll look back and question why all of these websites weren’t personalized.

Asked about leadership and his role at the company, Zuckerberg said that he would remain as CEO after an IPO, though he didn’t know when that would be. He also said that he regularly consults with a “core group” of Facebook employees that he has worked with for years, and that any of them would be capable of steering the company.

Toward the end of the conversation, Zuckerberg also noted just how much Facebook manages to accomplish with extremely small teams. Facebook Chat is run by one person. And Facebook search — which Zuckerberg said sees usage that’s on the same order of magnitude as Google search — is run by only twelve people.

Not to belittle what Facebook has accomplished with such small teams (really, it is quite incredible), but it’s worth pointing out that  the search comparison isn’t really fair. As MobileCrunch editor Greg Kumparak explains:

That.. doesn’t really make sense. Not the magnitude, but the comparison. It’s like saying “We are just as good at searching through our perfectly organized file cabinet as Google is at searching through someone else’s mansion.”

doubleTwist, the ‘iTunes for Android’ software that lets you sync your media files with dozens of devices, including Android phones, is one step closer to being a full-fledged solution for media sync on Android. The company has released a native Android application, available on Android Market for free, which offers users a polished media player capable of playing both audio and video.

Android is notorious for coming with a clunky default media player, and doubleTwist easily bests it, sporting a much cleaner interface, the ability to import iTunes playlists, and support for audio/video podcasts. That said, there are already plenty of third party solutions that also beat the stock Android player. So what makes doubleTwist different?

CEO Monique Farantzos says that the new doubleTwist Android player works directly with doubleTwist’s desktop software, in much the same way that the iPod and iTunes work together. Users can transfer ratings, playcounts, and other information back and forth between their phone and computer. Farantzos also says that online radio and support for wireless media sync (which would be big) are coming in the near future.

It’s worth pointing out that Android will soon allow users to stream their music from their PCs without having to physically connect their devices, but I suspect there will still be plenty of people looking to store and manage their media locally.

According to a Tweet just posted by Twitter engineer Nick Kallen, the microblogging network has just enabled a new “You both follow” feature. The feature, which is only being tested for 10 percent of users, allows you to see any common people that you and another user both follow. Here’s a screenshot of what the feature looks like.

The “You both follow” feature is pretty much what it sounds like. When you click on a contact it will show you the common people you both follow on the right sidebar of the page, just above the “following” tab. It’s actually surprising the feature hasn’t been turned on sooner, considering how useful it is in showing your social connections between other Twitter users.

“You both follow” is similar in theory to Facebook’s friends in common feature, which has been around for some time now. The feature no doubt makes Twitter a little more of an interconnected social network and it should be interesting if the microblogging network takes it a step further. For example, Twitter could start recommending people to follow based on who your friends are following.

UPDATE: Twitter API engineer Marcel Molina says in a Tweet that he’s formed a new team with Kallen to “build rapid prototypes.” I think this means we should be expecting more feature updates in the neat future.