My Xbox 360, linked to my Xbox Live account (and thus Windows Live, Hotmail, etc.), was stolen recently. I immediately changed my password, but to be on the safe side, I wanted to close my account. I realized I would lose all my paid-for downloads, but none of that had been used for quite awhile now.
Cancelling a Windows Live account is surprisingly difficult, and the website explanations are horrible. Effectively you can’t cancel your Windows Live account until all Microsoft paid subscription services that reference it are also cancelled *and* your “Microsoft Points” account is also closed. However, I couldn’t for the life of me figure out how to close this “Microsoft Points” account, which I got for free when I signed up for XBox Live, and which remained behind when I cancelled my XBox Live subscription.
In the end, I got my account closed by taking advantage of the “verify email address” behaviour of Windows Live. I removed all the email addresses I had on file with the account, and eventually during one of my logins, Windows Live prompted me to “verify my email address” by sending an email to that address. I did so, but when I received the email, I indicated that I had *not* requested the Windows Live account, which invalidated the account.
Subsequently, I tried to login to Windows Live, and I was greeted with the new user screen. Yay! Your mileage may vary, however, as my Windows Live ID was a non-Microsoft address (i.e. not hotmail.com, not live.com); I may have just lucked out to have a loophole available to me.