The steady deformation and orientation of droplets in shear flow, both under bulk and confined conditions, is microscopically studied for blends with one viscoelastic phase and a viscosity ratio of 1.5. The experiments are performed with a Linkam shearing cell and a counter rotating setup, based on a Paar Physica MCR300. For bulk shear flow, it is shown that matrix viscoelasticity suppresses droplet deformation and promotes droplet orientation towards the flow direction. Interestingly, these effects saturate at Deborah numbers above 2. For ellipsoidal droplets, viscoelasticity of the droplet fluid hardly affects the droplet deformation and droplet orientation, even up to Deborah numbers as high as 16. When the droplet is confined between two plates, the droplet deformation and the orientation towards the flow direction increase with confinement ratio, as in fully Newtonian systems. At a Deborah number of 1, the effect of component viscoelasticity under confined conditions remains qualitatively the same as under bulk conditions, at least up to a confinement ratio 2R/H of 0.6. The experiments under bulk conditions are compared with the predictions of phenomenological models, such as the Maffettone-Minale model, for droplet deformation. The Shapira-Haber model, which analytically describes the effects of the walls on the droplet deformation for fully Newtonian systems, is used to describe the experimental results under confinement. Here, this model is combined with the bulk phenomenological models to include bulk viscoelasticity effects. Under the present conditions, the adapted Shapira-Haber model describes the steady droplet deformation under confinement rather well. Finally, the experimentally obtained droplet shapes are compared with the results of 3D simulations, performed with a volume-of-fluid algorithm.