Via here and here:
If you'd like to be able to add pictures or video to Windows Live Movie Maker from a network drive without having to copy files over to your local machine, here's a quick registry hack:
- Run regedit.exe
- Navigate to HKEY_CURRENT_USER\Software\Microsoft\Windows Live\Movie Maker
- Add DWORD key named AllowNetworkFiles
- Open the key and switch the value to 1
Now you should be able to open Movie Maker and add a source file from a network location.