Hello there! Well I've been trying to gather some info about that. Until I have anything else I leave you with this:
First ask Windows to let you view your hidden folders. For that click go to "Tools/Folder Options" in your Tools Bar. There go to the "View" tab and check the "Show all hidden files and folders" radio button, click ok.
Then go to your System Drive (should be C
and go (Under Windows XP) to Documents and Settings/YourUserFolder/Contacts and delete what you see there, if there's something.
After that keep moving to Documents and Settings/YourUserFolder/Local Settings/Program Data/Microsoft/Windows Live Contacts and delete everything you see in that folder.
In Windows Vista/Windows 7 You should go to C:/Users/YourUserFolder/Contacts and delete the files you see there.
Restart WLM and see if that solved your problem =D!