Unverified. Got this in an email:

Increase Hotmail size to 250 MB
Source: http://forums.tech-arena.com/showthread.php?t=34197
Advice: Although this method doesn’t involve any loss of emails or contacts, its recommended to back them up before you do this process. You could setup your hotmail account in Outlook Express or any other email client.

Steps:

Login ur hotmail account and go to options.
Go to "Personal"
Click "My Profile"
Change Country to "United States"
Wait for browser to load United States settings.
Change the state to any American States. For example "Florida" and zip code "33332"
Click "update"
Click "Continue"
Go to "Language" and make sure its "English"
Paste this link in the same browser.
http://by17fd.bay17.hotmail.msn.com/cgi-bin/Accountclose

Wait until the Screen says you're Hotmail is Closed and ready to be deleted.
Click "Close Account".
Go back to login page and re-login to ur hotmail account..!!
Your account size will now increase to 25 MB, which a month later becomes 250 mb.

Good Luck..!!