Fake sender or email hijack (hotmail).

Question

My problem seems to have attributes of both methods mentioned in the discussion subject.
In the past few days, my 200+ contacts have received spam mail that contains a one line sentence and a link to one of several sites.
This all involves my web-based Hotmail account only.
Fact one is that my password, signature and other settings were not changed.
Fact two is that none of these messages are in my Sent box.
For these two reasons, I THINK that my password was not stolen (although I've changed it anyway).
Fact three is that most, if not all the mail, has been returned to me by Hotmail as Delivery Status Notification Failure.
Fact 4... about 3 weeks ago I DID open an email from my neighbor which was spam that was not actually sent by her.
Questions out of curiosity:
Do you think some live person discovered my password?  I would think I have a fake sender but for the fact that none of the undeliverable email contains addresses NOT in my web based Hotmail contact list.
Is my contact list somewhere on the iMac hard drive?
Is it likely that my password was not compromised and that the addresses were lifted from the Hotmail server?
Thanks for considering my quandry,
S. Goat

Answer 1

The Times article is excellent.
It makes me think:  If I sign up for an account on a less than ethical site, I might leave a contact email with them as well as password that might actually be the same as what I use to fetch my email.  Now... if the less than ethical site actually looks beneath the little black dots to read my password, well, it might just go fishing about various web based email services and possibly get lucky.  Hmm.
So... for one thing, I should never use my email password as a password for any other account. Ever.
As far as 'not using' Hotmail, I haven't had many complaints since 1999.  But in my current case, I feel I may need to not just stop using it but to ask MSN to completely make the account defunct.
Thank you WZx3!