If you are using Outlook 2003 to access your Hotmail account using the HTTP protocol and it keeps asking for your password over and over, and recently upgraded to Internet Explorer version 7, you need to see KB article 904942 and install an update to fix it. Note that at this time automatic updates does not seem to be pushing this fix down, you'll need to download and install it yourself if you are affected.

Authentication fails when you use Outlook or Outlook Express to try to log on to a HTTP-based mail server if you use Internet Explorer version 7.0
http://support.microsoft.com/?kbid=904942