When opening a friend's email message and realize that someone is sending spam through their account, users can now select "My Friend's Been Hacked" from the "Mark as" dropdown menu. Hotmail takes this report and combines it with their own data systems to determine if the account has actually been hacked. If the account has been compromised, two things happen: the account can no longer be used by the spammer; and, the owner of the account will have to go through an "account recovery flow" to take back control of the account.
Hotmail explains that these reports are one of the strongest signals to their detection engine. The service has also been expanded to inform other email providers like yahoo and gmail if any of their member accounts have been hacked.
They've also reported that with this feature, they've identified "thousands of customers" (a bit disconcerting?) who've had their accounts hacked.
The new service also comes with a list of new protection features -- one of which prevents users from having predictable passwords for their accounts. This feature will be implemented soon and users of Hotmail may be asked to change to a stronger password.