From the Windows Live ID team blog*.

CardSpace is a new way to sign in securely and conveniently into websites. And now you can use CardSpace with Windows Live! Using CardSpace with Windows Live means you don’t use a password to sign-in to websites which accept Live ID credentials. Instead, just send your CardSpace card to Live ID to identify you and use your Hotmail or Windows Live Spaces. And it is incredibly easy to use CardSpace with your LiveID. Just Follow this link (here) to get going in minutes!

If you are using Windows Vista, you are all ready to use CardSpace cards! If you are on Windows XP (or Windows 2003), you will need couple of quick steps. Go get IE 7.0, our newest and coolest browser, if you don’t already have it and install .Net 3.0 with CardSpace support. Follow these two quick steps to add an Information Card to your Live ID. To install these components and add an Information Card to your Live ID account, visit the Windows LiveID Information Card management page. Also go to that page to make changes to CardSpace cards linked with your LiveID.

Once you’ve added an Information Card to your Live ID account, sign in using the Information Card. You will be amazed at how easy it is! BTW, that Windows Live ID CardSpace support is still a “Beta”. We are still working on it and know a bunch of things that could be better. But do let us know your wish list; it is always good to get feedback.

Nayna Mutha, Program Manager – LiveID & Rob Franco, Lead Program Manager - Windows CardSpace

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Screencast by Nayna Mutha Streaming (public) (organized by Catherine Heller)

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Screenshots of the process

Visit the Manage your Information Cards site.

You will notice the green bar across the top in Internet Explorer and the certificate – this tells third parties they can trust who the site is (the bar to get a certificate like this is higher).

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Sign in with your password

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For security reasons you must enter your Windows Live™ ID password again.

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The Windows CardSpace component will open and you will once again be shown that login.live.com is owned and operated by Microsoft Corporation verified by VeriSign.

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If you have no Information Cards setup you are able to create a new card or restore a card.

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Currently Windows Live™ ID supports Personal Cards (aka Self Issued cards)

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You can enter the details of this card and then associate a picture, in this case the Information Card I am creating is my social card, which I use on social networks and non work-related sites. Because this is my social card I choose to include different degrees of personal information in the card.

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You see the list of cards you have including the new one created.

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You can preview the card before you send it, including where the card has been used before.

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The Information Card has now successfully been associated with your Windows Live™ ID account.

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When you click Finish the sign in process is completed.

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Close the browser and revisit any page which requires a Windows Live™ Login (or go to login.live.com)

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When you mouse over your account (if it is saved) you will see the choice of Password or Information Card, select Information Card

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Now you have selected Information Card you can click Sign In.

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The Windows CardSpace selection window will open and you can select the card you want to send.

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You are now successfully sign in.

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*I may have scooped the Windows Live ID team blog on posting this but it is up on visitmix too.