Let her disable the "Only people on my allow list..." option and let her click on 'ok' so the change is applied.
Then let her disable the second option "Alert me when..." and let her click on 'ok' so that change is also applied.
Then do the opposite: first enable "Alert me when..." (and press 'ok'), then enable "Only people on my allow list..." (and press ok)
See if that helps... If not, report it to Microsoft immediatly, including the email of the contact! (actually, report it anyways, even if the above worked, see below
)
----------
Sometimes it is possible that an option has goofed up and that it shows enabled/disabled, but that Messenger actually does the opposite....
----------
In such cases, always alert Microsoft of the problem:
http://support.live.com/default.aspx?productkey=wlmessenger
as it might indeed be a server bug.
/ 
