A report on Bink.nu says that Microsoft is un-enabling access to Hotmail from within Outlook and Outlook Express:
Citing concerns about spammers abusing the service, Microsoft on Monday will announce that it is dropping a feature from its Hotmail service that currently allows non-paying customers to access their email from Outlook and Outlook Express. The feature is based on a technology called WebDAV (Distributed Authoring and Versioning), an extension to the HTPP protocol on which the Web is based.
By ‘non-paying customers’, I guess this means the free Hotmail accounts. So the only way you’ll be able to manage your Hotmail account through Outlook or Outlook Express is if you have a paid Hotmail Plus account.