Not sure about this. Hotmail accounts are like Facebook connect accounts, and I use mine for xbox live, MSN messenger, among other Microsoft services. Yet I haven't used Hotmail in years, and when I did I'd always get the "we deleted everything so now you're fresh again" setup notice.
You don't have to use hotmail for MSN messenger, xbox live, or other services. I signed up for a windows live ID using my gmail email address. You can use yahoo too if thats what you use.