MSWMM is a Movie Maker project file: it's the video plus other gubbins. You need to "save movie file" to save a copy of the video. Then follow the prompts. In an attempt to keep things simple, Microsoft's actually made things a bit hard. If it only shows "best quality for my computer", check that the estimated file size is within Youtube's limits. If not, click on "show more choices", and then either force a file size, or choose something from the "other settings" list. The list is not obvious, so just go through the list until you find one that gives you the appropriate estimated file size.
You can always go back to the original MSWMM project file and try again.
Youtube understands most video formats, so you don't have to worry about that.