Richard, whose wife had her Hotmail account swiped by a hacker, was able to get it back by calling Xbox Live customer service, of all people.
Thanks so much posting, I hope it encourages some Hotmail users to up their security or switch over to another service.
I’m glad to say we got the account back a couple of days ago. Although we filled out the Identification validation forms, I think what actually got the ball moving was contacting Xbox Live customer service (the Hotmail account is tied to her gamertag via Windows Live ID) and escalating up to the second tier. We were able to verify identification via our credit card numbers and security questions asked by a real person. After that they locked all of the accounts (Windows Live, Hotmail, Xbox LIVE) and began an investigation.
My wife has changed her passwords, sent out apologies/ new contact info to everyone in her contacts, and closed the account. I think automated customer service has its place, but offering absolutely no phone service is frustrating.
Good to know that rarely-effective Xbox Lives CSRs can go beyond the call of duty every once in a while. Bravo.