Windows Mail doesn't support HTTP mail, which for a long time was the 
only allowed access method for free Hotmail accounts.
Last February, Microsoft enabled POP access (not IMAP) for free 
Hotmail/Live/MSN accounts. Follow the settings given here:
http://mailcall.spaces.live.com/Blog/cns!CC9301187A51FE33!49799.entry
Use port 587 rather than port 25 for the SMTP server.
Although it accepts the newer Live.com addresses, Windows Mail's 
account setup wizard is hard-coded to reject Hotmail and MSN addresses.
To get around that, when you enter your Hotmail/MSN email address initially, 
use a fake one, such as (e-mail address removed). After the account setup is complete, 
go back and correct your email address.