Yes you can use Hotmail with Thunderbird, as I took these settings out of my Thunderbird.
It doesn't require you to pay ANYTHING. You also don't need to install addons like Jensen is suggesting.
Server Settings:
Incoming Mail (POP):
Server Name: pop3.live.com
Port: 995.
Security settings: SSL
Outgoing Mail (SMTP):
Server Name: smtp.live.com
Port: 25
Use Secure Connection: TLS
When you add multiple SMTP accounts it gives you a warning, ignore it as it works fine.
The reason behind this is Outlook Express. From September Hotmail will no longer support the DAV protocol which is what OE uses to access Hotmail.
"You are receiving this note because you have used Microsoft Office Outlook, Outlook Express, or Entourage to view your Windows Live Hotmail®. Microsoft is changing the way these programs access Hotmail e-mail which will require you to take action.
To continue to receive e-mail from your Hotmail account, please select one of the alternative solutions below before September 1, 2009. After this day, new e-mail can only be delivered to your mail programs through the following alternative solutions."
"Why is this happening? Outlook, Outlook Express, and Entourage use a legacy communications method (known as the DAV protocol) to access Hotmail. Because the DAV protocol is not optimally suited for programs to access large inboxes such as Hotmail which now provides users ever-growing storage*, new alternatives have been built. Last year, customers asked us to postpone plans to retire the DAV protocol until more options were available. Now that these options (including the POP3 protocol) are available, we are ready to retire the DAV protocol."