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I'm using the 2007 one, and it just doesn't seem anywhere near as comparable as stand-alone GPS in terms of ease of use, simplicity, interface, effectiveness...
First off, the version you are using is a bit out-dated now and you really should try Streets and Trips 2010. Download free, full-functioned 60-day trial from Microsoft.
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1. If you get off route, it won't recalculate a new route to the destination, it'll just say OFF ROUTE.
Streets and Trips 2010 will recalculate after a reasonably short time "Off Route."
Sorry about the overlap with NealRM's response posted while I was composing.
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2. When you want to find a location, say Walmart, it won't give you a list of the closest Walmart to your GPS location, it'll give you a list of ALL OF THE WALMARTS in the US.
It depends on how you do your search. I guess you are just doing a simple search. If, on the other hand, you use the "find nearby places" Streets and Trips 2010 feature it will find points of interest and active pushpins sorted in various ways, one of which is distance from a selected point which can be your current GPS location.
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Do I just not know how to use the software, or is Microsoft seriously shortsighted in making a decent GPS software?
It depends on what you want your software to do. S&T seems to be more for developing cross-country routes and following them.
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Any suggestions for a GPS software that does what I want it to do?
I can be easily persuaded that for tasks like your Walmart search example, there are better apps; in-dash sat-navs or I-Phone apps among various.