A comparison of the difference between the two from Microsoft:
Q: How is this different from Windows
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.