What does Windows Defender do that AVG doesn't?
For services they both offer - what one does best in each area?
AVG does do Anti-Spyware.

Windows defender is an antispyware program and AVG is an antivirus program.

So windows defender does spyware, and AVG does viruses.

I could be wrong, I've never really played with AVG so it might do antispyware as well.

Edit:
AVG should be better for antispyware than Windows Defender, But my favorite Antispyware is Spybot S & D

If you are truely believe in microsoft products, by all means to use it and rely on it.

Personally, I keep several anti-virus programs as I have seen some anti-virus catches some while the other not catching anything.

Instead of putting all egg in one baskets, I sure spread my trust over several programs.