Well, that’s true. Hotmail team introduced this feature in the Hotmail. This feature can be really helpful to get back your friend’s hacked account.
At Hotmail, we know that account hijacking is a big problem, and we continue to work hard to prevent it. We’ve noticed a couple of things about hijacked accounts. First, many accounts have weak passwords that make them easy targets for hijackers. Second, when someone’s account gets hijacked, their friends often find out before they do, because the hijacker uses their account to send spam or phishing email to all their contacts.
These two observations led us to develop a couple of new features that help protect your accounts. The first lets you report a friend’s account as compromised – a feature unique to Hotmail – and the second prevents you from using common passwords that make your account easy to hack.
Getting spammed by a friend
Maybe you’ve had this happen to you: You sign in to Hotmail, and you see you’ve got new mail from one of your friends. You open the message only to discover that it’s spam! Maybe it’s obvious spam – like an ad for a product. Or maybe it’s a more involved story – like a plea for money, with an explanation that your friend is stuck in a foreign country and needs cash, when you know for sure that your friend is safe and sound at home.
Whatever the case, one thing is for sure: this email isn’t really from your friend at all. Instead, it’s from a spammer who has hijacked your friend’s account. When this happens, you probably call or text your friend or contact them on an alternate email address to let them know that their email account has been compromised. But you wish you could do more.
Now you can. Hotmail lets you report your friend’s account as compromised. It’s easy: When you get that spam message supposedly from your friend, you just click “My friend’s been hacked!” on the “Mark as” menu:
You can also report an account as compromised when you mark a message as junk or otherwise move a message to the Junk folder:
You can read the complete article over here…http://windowsteamblog.com/windows_live/b/windowslive/archive/2011/07/14/hey-my-friend-s-account-was-hacked.aspx
Also, take a look at this page http://explore.live.com/windows-live-hotmail-security-checklist-faq