I don't use it. But yesterday I moved my parents off Google Apps and onto Hotmail with a custom domain. They won't be using the web interface which has the following flaws which would be a deal breaker:
1) Huge graphic ad on inbox page. Gmail is a heck of a lot less annoying.
2) Sticks an ad on the bottom of every e-mail. Urgh.
Luckily using Windows Live Mail neither of these are true. The main reason I moved them over was due to poor IMAP performance, especially with my mum who created loads of folders which has always been a bit glitchy with Gmail. I don't think my parents
can handle a web interface yet, so performance with a client was pretty important. Live Mail would be munching Gmail for about 10 seconds or so after checking for e-mails, and then it would be pretty laggy afterwards. Using Hotmail is way way faster. Intergration
with the rest of their Windows Live stuff also helps as they both use Messenger.
What I would like to see:
1) IMAP support, just to make it viable alternative for techies.
2) Lose some of the ads or at least have text ads, applies for the whole Live thing.
3) Lose the signature ad when sending from the web interface, it is so 90s.
4) Up the attachment size to at least 20MB to compete with Gmail/Yahoo.
Hotmail needs to make itself appeal more to the techies, many of whom decide what their family end up using. If it wasn't for performance issues with how Live Mail handles IMAP, I would never have switched them from Gmail to Hotmail. When the case for
using a service comes down to how poorly Live Mail (and Outlook let's face it) use IMAP that's a pretty weak position to be in.
Looking forward to the wave 4 stuff. Especially Activesync, as I'm sure one of them will be getting a smartphone in the next couple of years. Hopefully the Hotmail team can rev things up a bit.