Hotmail seems to have made this more awkward and dont know to go about this really. So if someone could go thru this step my step rom when you go into contacts I would be eternally grateful,
On the left hand side click contacts. Then select the tick box down the left hand side of the names you want to add to a group. Then click on Add to Group in the drop down window above the contacts (above the alphabet listing). I'm using the latest Windows Live Messenger which is accessed via this server [broken link removed] so maybe if you upgrade your account you might get this 'easy' interface.