You can try to fix it by removing the directories:
%userprofile%\contacts\XXXXX
%userprofile%\Local Settings\Application Data\Microsoft\Windows Live Contacts\XXXXX
where XXXXX is your email address or your MSN User ID. Which can be calculated
here
NOTE: some folders may be hidden...to unhide them go...Tools -> Folder Options -> View -> Choose "Show Hidden Files and Folders" -> Click on OK. Then make sure once you are done, to change it back
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