Vancity, if you log onto
Web Messenger, are your contacts there?
This will tell us whether or not your contacts are a) hidden or b) deleted.
Try reinstalling WLM. This can be done by a) Removing WLM in Add/Remove Programs, then downloading and installing or b) If you have Messenger Plus! Live, go to it in Add/Remove Programs, then choose the option to reinstall WLM.
Remove an add-ons for Windows Live Messenger which may be conflicting, if you have any.