Using video-optical microscopy and image analysis software, the morphological development of phase separation of polystyrene (PS) and poly(vinyl methyl ether) (PVME) blends is monitored for film thickness ranging from 200 to 700nm's. In the current studies, films are confined between glass slides. For blends having a PS volume fraction of 0.30 (the critical composition), the area fraction of the PS-rich minority phase, A, decreases more rapidly as film thickness decreases. At long times, the final A achieves a constant value which is less than the bulk value. The correlation length of concentration fluctuations increases more rapidly than the bulk scaling prediction, which suggests that wetting plays a significant role in the phase separation kinetics of thin films. Because of confinement, the shape of the PS-rich phase is anisotropic, flattened along the film direction. The confinement restricts the phase growth perpendicular to the film plane, and thus hinders the development of phase separation at very late stages.