The latest version of Windows Live Movie Maker, available here, accepts .MP4 files from the Flip directly, without a manual conversion step.  When you drag a Flip .MP4 clip into Windows Live Movie Maker, the clip is quickly and automatically converted, and plays at full speed when you're editing.

Meanwhile, Windows Live Movie Maker has become more and more powerful. Although I personally still prefer the timeline-style editing of most other video editors, WLMM has, in some ways, surpassed the capabilities of its WMM predecessors, adding things like one-step uploading to online services such as YouTube and Facebook.  It's probably the best bet for free video editing on the Windows platform.

As for Mac/iMovie envy, I find this quote from PC Magazine pretty much on the mark:

"I can say with confidence, though, that with this latest version of Movie Maker, Windows users needn't envy their Mac counterparts based on iMovie. And what's more, upgrades for Apple's software aren't free."

For further discussion of Windows Live Movie Maker, add your comments to this article.