Martin Parry (MS UK Evangelist) wrote a killer article on Windows Live Data. The area he focused on was the Contacts API.
In Hotmail/Messenger/Spaces the address book has been unified. Now we have such a rich address book(s) (500 million) with lots of contacts (and 30 billion relationships) that data wants to be free.
Basically the way it works is:
To see the working and to dig deeper see www.randomthirdparty.com (dev's shouldn't name domains). This is a public website which is similar to an interactive SDK
Check out Martin's article or the SDK or an implementation for Contoso University or cruise over to dev.live.com to see what other services there are.