This is 'Direct Typing' in MS-Word in Non-Transparent mode. One can do this type of Direct Tamil Transliteration in ANY windows application like MS-Excel, MS-Powerpoint, MS-Access, Outlook Express, Wordpad, Notepad, Yahoo! Messenger, MSN Messenger, Yahoo! Mail, Hotmail etc. etc.
For instance, start Azhagi fully, open any other application (say MS-Excel), press 'F10', type in English and see it in Tamil. As simple as that.
'Direct Typing' in Tamil in MS-Word (or any other windows application) in Transparent mode is also possible.