The Outlook Connector Contact Sync Bug is fixed. Hotmail deployed the fix to their servers the week of Sept 15 2011 and Contact Sync is functional again.
There may be some minor issues with refreshing the view in Hotmail. If you make a change in Outlook, you may not see the change reflected in Hotmail until you sign out and sign in again. If you don't work online and in Outlook at the same time, you'll probably never notice this problem.
Outlook Connector users discovered a bug in the Contact sync process: When contacts are edited in Outlook, the changes won’t sync up to the server. If the contact is edited online, the changes will sync down.
Creating new contacts in Outlook does not have this problem, only editing existing contacts. However, it may appear that new contacts created in Outlook do not sync up to the server. In reality, they sync up fine but are not visible online until you refresh the screen, usually by logging out of, then logging back into Hotmail. Most users aren't affected by this issue because they use either Outlook or the web interface, not both at the same time.
The Outlook Connector group is aware of these problems. Until a fix is released, their recommended work around is to edit Contacts only online, not in Outlook.
My recommended work around is to save changes to the contact then copy & paste the contact in place (Ctrl+C, V). Delete the original (to avoid problems with duplicates). The copy syncs up to the server just fine. While copying contacts breaks contact linking, the Outlook Connector doesn't fully support linking and activities, so this is less of an issue.
Note that the updated Outlook Connector (v.14.3) that is a mandatory upgrade does not address the problem. The sync issues are the result of server configuration and it needs to be fixed on the server.