This is already a feature in Windows Live Messenger...
Always explore software first before making suggestions
The contacts of your contact,
who have given their explicit permission to be on your contact's
friends list, are viewable by
right clicking on the contact in the contact list and choosing
View > Friends list.
As fatfreechicken has said, there is no way you can simply view the contacts of a contact without having the permission of those contacts of your contact because that is a very big breach of privacy. Something like that will never ever be implemented...