unionfan,
I'm not a fan of the hotmail connector. When i configured my Outlook 2010 to my live or hotmail accounts, i set them up as pop access. Using the proper server and port settings everything works fine.
To aid you in this issue, can you adjust the account information? If so confirm the server information is correct. reason why i say confirm is my incoming mail server is pop3.live.com on port 993. outgoing is smtp-server.wi.rr.com port 25.
The Outgoing server might not be the same for you.
Hope this helps