Attempting to log on to Hotmail / Windows Live reports that passwords are incorrect... (Or, returns the normal "has had too many incorrect log-ins" message).
Though the interesting thing, is that I can't recall Hotmail ever having stated "password is incorrect". It's such a nice thing to provide to the massive PRC army to monkey-hack...
I've confirmed my account info is valid on my hand-held, though logging on to a newly created Hotmail account receives the same error "Password is incorrect" message on the PC. (Yes, CAPS LOCK is not on... lol)
It may just be a passing issue with Hotmail / Windows Live. The issue might go away after a while.
It may also be that there has been some suspicious activity with your account. I.e. someone is attempting to login to your account. It's probably worthwhile reviewing the security on your account.
While I'm here, if you are using the Live messenger, you might want to consider using Pidgin instead. You can just configure it to log into your live account. I switched years ago when Live messenger got rather ad heavy.
Thanks RIP; After a while, I started getting "Hotmail Service is unavailable" (and not in the 404-sense), but it cleared up some hours later.
Also, none of the machines I tried connecting from were 'hijacked', nor was the ISP.