The solution to this issue in my case was the "compatibility" under MSN Live properties.
Right Click on WINDOWS LIVE MESSENGER
go to PROPERTIES
then chose: COMPATIBILITY tab
and make sure the Compatibility mode is UNCHECKED
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After many attemps trying to get the msn contacts back and doing all of the suggestions I came accross, one was to change the compatibility to Windows 2000. Later I realized I had no Messenger Plus and I thought I had ruined this more than it was. Two days later, after reading every possible thread on this web site (before actually posting my concern and then getting yelled at by some of the support members!) I came accross this solution in a thread that had nothing to do with this...so I decided I was going to make a comment on this one...Hope that helps