Q: How is this different from Windows Defender?
A: Windows Defender detects and removes known spyware only. It is not designed to protect against the full breadth of malicious software, and specifically does not prevent viruses, worms, Trojans, and other malicious software from infecting your machine. The new no-cost solution will be a comprehensive anti-malware solution.

Q: Is Microsoft Security Essentials designed to replace Windows Defender?
A: No but if you are running Microsoft Security Essentials, you do not need to run Windows Defender. Microsoft Security Essentials is designed to disable Windows Defender in order to manage the PC’s real-time protection, including anti-virus, rootkits, Trojans and spyware.

Q: Does installing Microsoft Security Essentials disable Windows Defender
A: Currently Microsoft Security Essentials does not disable Windows Defender, but it should and will in a later version of the beta.

Q: Do I need to manually disable Windows Defender in the meantime?
A: No, you can safely leave both applications enabled.

Notes from the MSE forums:
MSE turns off Windows Defender, "by design". If MSE is uninstalled, Defender is re-enabled.

Since Windows Defender is installed with the operating system for both Windows Vista and Windows 7, it will be patched with the operating system regardless of whether it is enabled or not, especially since it will be automatically re-enabled if MSE is later uninstalled.

With Windows XP, the situation is different, so in that case you may wish to remove Windows Defender completely before installing MSE. However, it should still be disabled and having it there as a backup if MSE is uninstalled might still be valuable.

OneCare subscriptions will not be renewed.
Existing subscriptions will be fully supported for their term or the end of 2010, whichever comes first.

http://social.answers.microsoft.com/Forums...4f-0dcedb9ab9fd