Windows – Difference between Malicious Software Removal Tool, WinDefender, Security Essentials

Yes. Windows Defender protects against adware and spyware, while MSE does all that and more (protection from viruses, rootkits, etc).

MSE will actually disable Windows Defender to manage your PC's realtime protection. Also, from the Security Essentials Wikipedia page:

Microsoft Security Essentials (MSE) (Previously codenamed Morro) is a free antivirus software created by Microsoft that provides protection against viruses, spyware, rootkits, and trojans for Windows XP, Vista, and 7.

MSE replaces Windows Live OneCare — a subscription antivirus service — and Windows Defender, which only protects users from adware and spyware.

A comparison of the difference between the two from Microsoft:

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.