I used to be a big Hotmail user. Now I use only Gmail. There are probably 100 reasons why Gmail is better, and probably a few in favor of Hotmail too.
But if I had to put my finger on a single reason why Hotmail sucks, it would have to be that damn leaderboard ad on the top of the page (screenshot below).
The traditional 3-pane layout in email apps causes the most precious asset to be the vertical axis. These vertical pixels have to accommodate both the list of emails, and the email itself (not to mention all the regular stuff like menus, logo, etc).
The leaderboard ad kills 90 vertical pixels. On my 1024x768 screen resolution, the vertical viewable browser area (after deducting browser menu bars, Google toolbar, tabs, windows start bar, etc) is 518 pixels. Which means that one stupid ad reduces my precious vertical real estate by nearly 20%. As soon as the Hotmail window loads, it's apparent how annoying this ad is.
I'll bet you that the designer of Hotmail (er - Windows Live) is using Gmail.